CENTRAL BANK OF NIGERIA
MONETARY
MONETARY
POLICY REVIEW
POLICY REVIEW
MONETARY
POLICY REVIEW
FEBRUARY 2021
FEBRUARY 2021
VOLUME 00, NUMBER 0
VOLUME 00, NUMBER 0
FEBRUARY 2021
VOLUME 00, NUMBER 0
Central Bank of Nigeria
33 Tafawa Balewa Way
Central Business District
P.M.B. 0187, Garki,
Abuja
Phone: +234 (0)9 462 36011
Website: www.cbn.gov.ng
E-mail:
ISSN: 2141-6281
©2021 Central Bank of Nigeria
Mandate
§Ensure monetary and price stability
§Issue legal tender currency in Nigeria
§Maintain external reserves to safeguard the international
value of the legal tender currency
§Promote a sound financial system in Nigeria
§Act as banker and provide economic and financial
advice to the Federal Government
Vision
“Be the model Central Bank delivering Price and
Financial System Stability and promoting
Sustainable Economic Development"
Mission Statement
“To be proactive in providing a stable framework for the economic
development of Nigeria through effective, efficient and
transparent implementation of monetary and exchange
rate policy and management of the financial sector"
Core Values

· Meritocracy
· Leadership
· Learning
· Customer - Focus
Central Bank of Nigeria
iii
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CONTENTS
Page
iv
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Table of Contents
Statement by the Governor

vii
Chapter 1: Overview.. ..


Chapter 2: The Global Economic Developments
..
..
..

2.1
Global Output ....


2.2
Global Inflation ..


2.3
Global Financial Market Developments ..
..
..
..

Chapter 3: The Domestic Economy


3.1
Output in the Domestic Economy .. ..
..
..
..

3.2
Domestic Price Developments..


3.3
Monetary Policy and Liquidity Management..
..
..

3.4
Domestic Financial Markets Developments.. ..
..
..

Chapter 4: Economic Outlook and Risks..


4,1
Outlook for Global Output .. ..


4.2
Outlook for Global Inflation .. ..


4.3
Outlook for Domestic Output Growth ..
..
..
..

4.4
Outlook for Domestic Inflation ..


4.5
Outlook for Monetary Policy in 2021 .. ..
..
..
..

4.6 The Risks to the Outlook ..


Appendices ..


List of Tables
Table 2.1:
Policy Rates of Selected Central Banks July – December


Table 2.2:
Selected International Stock Market Indices as at


December 31, 2020


Table 2.3:
Exchange Rates of Selected Countries (value in currency


units to US$)


Table 3.1:
Inflation Rates, July – December 2020..
..
..

Table 3.2:
Major Components of Headline Inflation (Y-on-Y),


July - December 2020..


Table 3.3:
Major Components of Headline Inflation (M-on-M),


July - December 2020 ..


Table 3.4:
Major Components of Food Inflation (Y-on-Y),


July - December 2020..

..
..
..

Table 3.5:
Major Components of Food Inflation (M-on-M),


July - December, 2020.


Table 3.6:
Major Components of Core Inflation


(Y-on-Y) July - December 2020
..
..
..

Table 3.7:
Major Components of Core Inflation


(M-on-M) July - December 2020
..
..
..

Table 3.8:
Actual and Seasonally Adjusted Headline Inflation


July - December 2020 ..


Table 3.9:
OMO Bills Auction (July - December 2020) (N'billion)..

Table 3.10:
CBN Standing Lending Facility (January 2019 –


December 2020) (N'billion)


Table 3.11:
CBN Standing Deposit Facility (January 2019 –
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Page


December 2020) (N'billion)


Table 3.12:
Foreign Exchange Supply by the CBN (US$ Million) ..

Table 3.13a:
The Performance of Monetary Aggregates and their


Implications


Table 3.13b:
The Performance of Monetary Aggregates and their


Implications


Table 3.14: Weighted Average Monthly Money Market Interest Rates


(July - December, 2020)..


Table 3.15:
Average Monthly Spot Exchange Rates (N/US$) January –


December 2020


Table 3.16:
End-Month Exchange Rates (N/US$) January –


December 2020


Table 3.17: Nominal and Real Effective Exchange Rates Indices

(July 2019 – December 2020) ..
..
..
..

Table 3.18:
Monthly Foreign Exchange Flows through the CBN


(July 2019 – December 2020) ..
..
..
..

Table 3.19:
Monthly Foreign Exchange Flows through the Economy


(Jan 2019 – December 2020) ..
..
..
..

Table 3.20:
NSE All-Share Index (ASI) and Market Capitalization (MC)


(December 2019 – December 2020) ..
..
..

Table 4.1
Global Output and Inflation Outlook ..
..
..

Table 4.2
Possible Variations in Nigeria's GDP growth outlook ..

Table 4.3
Inflation Forecast..


List of Figures
Figure 3.1:
Gross Domestic Product Growth Rate (2019Q1 – 2020 Q4).. 12
Figure 3.2:
Non-oil Sector Performance (2019Q1 – 2020 Q4)..
..

Figure 3.3: Oil Sector Performance (2019Q1 – 2020 Q4) ..
..

Figure 3.4:
Agricultural Sector Contribution by Activity,


(2019Q1 – 2020 Q4)


Figure 3.5:
Industrial Sector's Contribution by Activity,


(2019Q1 – 2020 Q4)..


Figure 3.6:
Services Sub-Sector Contribution, 2019Q1 – 2020 Q4..

Figure 3.7:
Quarterly Domestic Oil Production and Export


(2018Q1 – 2020 Q4)


Figure 3.8: Monthly Bonny Light Price, July - December 2020
..

Figure 3.9:
Headline, Core and Food Inflation Rates (July –


December 2020)..


Figure 3.10:
Major Components of Headline Inflation (Y-on-Y) July –


December 2020


Figure 3.11: Major Components of Headline Inflation (M-on-M) July –


December 2020..


Figure 3.12:
Major Components of Food Inflation (Y-on-Y) July –


December 2020..


Figure 3.13: Major Components of Food Inflation (M-on-M) July –


December 2020 ..


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Figure 3.14: Major Components of Core Inflation (Y-on-Y) July –


December 2020..


Figure 3.15:
Major Components of Core Inflation (M-on-M) July –


December 2020 ..


Figure 3.16:
Actual and Seasonally Adjusted Headline Inflation July –


December 2020..


Figure 3.17:
OMO bills Auction (July – December 2020) ..
..

Figure 3.18:
Standing Lending Facility (July – December 2020)
..

Figure 3.19:
Standing Deposit Facility (July – December 2020)
..

Figure 3.20: Total FX Supply (Including Forward Sales (July –


December, 2020)


Figure 3.21: Money Supply (M1), (M2) and (M3) (July – December 2020) 38
Figure 3.22:
Growth in Money Supply (M1), (M2) and (M3) (July –


December 2020) ..


Figure 3.23:
Net Domestic Assets (NDA) (July – December, 2020) ..

Figure 3.24: NDA, NDC and Other Assets (Net) (July – December, 2020) 39
Figure 3.25: Domestic Credit to Private Sector (July – December, 2020) 40
Figure 3.26:
Weighted Average Monthly Money Market Interest Rates

(July – December, 2020) ..
..

..
..

Figure 3.27: Daily Interbank Call Rate (July – December, 2020)
..

Figure 3.28:
Daily Open Buy Back Rate (OBB) (July –


December 2020)


Figure 3.29: Daily Naira/US Dollar Exchange Rate (July –


December, 2020 )


Figure 3.30:
Nominal and Real Effective Exchange Rates Indices


(July 2019 – December 2020) ..
..
..
..

Figure 3.31:
Monthly Foreign Exchange Flows through the CBN


(Jul 2019 – June 2020) ..


Figure 3.32:
Monthly Foreign Exchange Flows through the Economy

(Jan 2018 – December 2020) (US$ Million)..
..
..

Figure 3.33: NSE All Share Index (ASI) and Market Capitalization (MC)


(December 2019 – December 2020)..
..
..

Figure 3.34:
NSE ASI and MC (June – December 2020)
..
..

Figure 3.35:
NSE Market Capitalisation by Sector as at End-June 2020

Figure 3.36:
NSE Market Capitalisation by Sector as at End-


December 2020


Figure 3.37:
Warren Buffett Valuation of Nigerian Equities Market ..

Figure 3.38:
10-Year U.S. Dollar-denominated Bond Yield for Nigeria

(December 2019 – December 2020) ..
..
..

Figure 3.39:
FGN Bonds Yield Curves: end-Sept. 2020 vs. end-Nov. 2020


vs. end-Dec. 2020


Figure 3.40: Structure of the Nigerian Capital Market (December, 2020) 56
Figure 4.1: Fan Chart of Inflation Forecast..
..
..
..

Figure 4.2: Inflation Forecast..


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STATEMENT BY THE GOVERNOR
M
onetary policy in the second half of 2020, was shaped by persisting
uncertainties that resulted from the outbreak of the Coronavirus Disease
(COVID-19) pandemic in the first half of 2020, and the threats of a second
wave infections with the emergence of new variants of the disease. Continued
lockdowns of world economies to curtail the pandemic slowed global output
recovery, due to persistent decline in global aggregate demand, and disruptions in
global supply chains and trade. In addition, vaccine production and distribution
remained inadequate and unequal across regions. Other vulnerabilities included
rising sovereign and corporate debts; heightened financial market volatilities; low
prices of crude oil and other commodities; slow recovery in supply chain networks;
and rising unemployment.
Following these developments, the domestic economy faced sustained pressure on
the exchange rate coupled with strains on demand and supply which elevated the
general price level. Accordingly, headline inflation (year-on-year) rose from 12.82
per cent in July to 15.75 per cent in December 2020. Growth performance remained
susceptible to challenges from the global and domestic economic environment.
Consequently, the economy slipped into a recession as output contracted by 3.62
per cent (year-on-year) in the third quarter of 2020 following a contraction of 6.10
per cent in the preceding quarter. The contraction was largely driven by a sharp
contraction of 13.89 per cent in the oil sector as well as the contraction of 2.51 per
cent in non-oil sector in the third quarter of 2020. Following the sustained
implementation of economic stimulus by both the monetary and fiscal authorities,
the economy exited recession in the fourth quarter of 2020, as Real Gross Domestic
Product (GDP) grew by 0.11 per cent (year-on-year) in the fourth quarter of 2020.
The Nigerian Financial market witnessed considerable volatility owing to lingering
shocks from the pandemic, weakness in crude oil prices, soaring global debt and
high unemployment. The fluctuations in the money market interest rates, remained
within the Standing Facilities corridor reflecting swings in banking system liquidity. The
capital market, however, witnessed a bullish trend, driven by strengthened investors'
confidence in the equities segment of the market. Consequently, the All-Share
Index (ASI) increased by 64.51 per cent from 24,479.22 at end-June 2020 to 40,270.72
at end- December 2020.
In order to contain the foregoing developments, monetary policy in the review
period remained largely accommodative. In addition, the Bank sustained its
development finance interventions to maintain a balance between supporting the
vii
fragile recovery of output growth and stable price developments. Thus, Monetary
Policy Rate (MPR) was reduced by 100 basis points to 11.5 per cent, while the
asymmetric corridor was adjusted to +100/-700 basis points around the MPR, the CRR
of 27.5 per cent and Liquidity Ratio of 30.0 per cent were maintained throughout the
period.
The outlook for the domestic economy over the short-to-medium-term indicates
that inflationary pressure may be sustained, being accentuated by rising food prices
resulting from disruptions to the food supply chain arising mainly from banditry and
insurgency in major food belts, persisting pressure on the exchange rate, and
increased fiscal stimulus to cushion the impact of the COVID-19 pandemic.
Nonetheless, monetary policy will continue to be proactive, and supportive of
financial stability and non-inflationary output growth.
GODWIN I. EMEFIELE
Governor, Central Bank of Nigeria
February 2021.
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CHAPTER ONE

1.0
OVERVIEW
his chapter presents a summary of
the entire document by highlighting
key developments that influenced
monetary
policy
as
well
as
the
attendant policy responses by the Bank
during the second half of 2020. The
developments
cover
global
and
domestic
output,
prices,
monetary
policy and liquidity management as
well as the financial market.

In the review period, the thrust of the
Bank’s monetary policy continued to
signal a moderately accommodative
policy-stance, reflecting developments
in the global and domestic economic
and
financial
environments.
These
developments included the protracted
lockdown of economies across several
regions of the world following the
second wave of COVID-19 infections
and
the
absence
of
effective
treatments for the virus which continued
to drag global output recovery. Other
factors were: persisting decline in global
aggregate
demand
and
supply;
disruptions in global supply chain and
trade; rising sovereign and corporate
debts; heightened financial market
vulnerabilities; low prices of crude oil
and other commodities; slow recovery
in supply chain networks; and rising
unemployment. Thus, the strains on
demand and supply coupled with the
pressure on the exchange rate elevated
the general price level as headline
inflation (year-on-year) rose by 2.93
percentage points from 12.82 per cent
in July to 15.75 per cent in December
2020.

During the second half of 2020, the
domestic economy recorded mixed
performance. The economy slipped
into recession in the third quarter of 2020
following two consecutive quarters of
negative growth, owing to a halt to
economic activities as a result of the
lockdown measures to contain the
spread of the coronavirus disease
(COVID-19). This followed sustained
implementation of economic stimulus
by both the monetary and fiscal
authorities. Data from the National
Bureau of Statistics (NBS) showed that
the real Gross Domestic Product (GDP)
contracted by 3.62 per cent (year-onyear) in the third quarter of 2020 in
contrast to the growth of 2.28 per cent
in the corresponding period of 2019 and
contraction of 6.10 per cent in the
preceding
quarter,
resulting
in
a
recession. The recession was largely
driven by sharp contraction in the oil
sector by 13.89 per cent, a 20.38
percentage points decrease compared
with the growth of 6.49 per cent
recorded in the corresponding quarter
of
2019.
The
non-oil
sector
also
contracted by 2.51 per cent in the third
quarter of 2020, in contrast to the growth
of 1.85 per cent in the corresponding
quarter of 2019. The outcome was a
lower contraction when compared with
-6.05 per cent in the preceding quarter
of 2020.

In the fourth quarter of 2020, the
economy exited recession owing to the
implementation
of
the
Economic
T
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Sustainability Plan (ESP) of the Federal
Government as well as the sustained
interventions in the real sector by the
Central Bank of Nigeria. Accordingly,
real Gross Domestic Product (GDP) grew
by 0.11 per cent (year-on-year) in the
fourth quarter of 2020, lower than the
2.55 per cent in the corresponding
period of 2019 and in contrast to the
contraction of 3.62 per cent in the third
quarter of 2020. The output growth was
driven mainly by the performance of the
non-oil sector which grew by 1.69 per
cent in the fourth quarter of 2020. The
outcome was lower than the growth of
2.26
per
cent
recorded
in
the
corresponding period of 2019 and was
in contrast to the contraction of 2.51 per
cent in the preceding quarter of 2020.
The oil sector, however, contracted by
19.76 per cent in the fourth quarter of
2020 in contrast to the growth of 6.36 per
cent in the corresponding quarter of
2019. The outcome was, however, a
deeper contraction compared with -
13.89 per cent in the preceding quarter
of 2020.

Foreign exchange pressure continued
to mount in the second half of 2020,
arising from the shock to the oil market
compounded
by
the
COVID-19
pandemic. There was relative stability at
the
interbank
foreign
exchange
window.
Exchange
rate
premium
widened remarkably in November 2020,
owing largely to significant dip in
reported remittances. To encourage
increased remittances, the Bank, in
December 2020, directed all diaspora
remittances to be paid directly in
foreign currency to beneficiaries. The
immediate
impact
of
the
policy
directive was reflected in the narrowing
of the exchange rate premium from
N114/US$ in November 2020 to N84/US$
in
December
2020.
The
interbank
exchange rate stabilized at N381/US$ all
through the review period. The Bank
sustained
existing
reforms
and
maintained the restriction of access to
foreign
exchange
for

items,
suspended
the
integration
and
collaboration between mobile money
operators (MMOs), Switches, PSPs and
IMTOS on diaspora remittances, such
that only DMBs can pay beneficiaries of
diaspora
remittances
in
foreign
currency. The policy was intended to
centralize
the
transmission
process,
eliminate the multiple layers of unofficial
channels
and
check
diversion
of
remittance inflows.

In the second half of 2020, the Nigerian
financial market witnessed considerable
volatility owing to lingering shocks from
the COVID-19 pandemic, weakness in
crude oil prices, soaring global debt and
high unemployment.

In the review period, the instruments
used by the Bank to achieve its
objective
of
price
and
monetary
stability remained: the Monetary Policy
Rate (MPR); the Cash Reserve Ratio
(CRR); Liquidity Ratio; Open Market
Operations
(OMO);
and
Discount
Window
Operations.
These
were
occasionally
complemented
with
interventions in the foreign exchange
market. Among these, the Monetary
Policy Rate (MPR) continued to be the
Bank’s key instrument for signalling
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monetary
policy
stance
and
management. It was reduced by 100
basis
points to
11.5
per
cent
in
September 2020, while the asymmetric
corridor was also adjusted from +200/-
500 to +100/-700 basis points around the
MPR during the review period. The
reduction
signalled
the
Bank’s
commitment to support the recovery of
output growth.

The
primary
tool
of
liquidity
management in the review period
remained Open Market Operations
(OMO). OMO sales decreased by 5.45
per cent to N6,138.58 billion in the
second half of 2020 from N6,492.30
billion in the preceding half year. The
outcome was also a decrease of 31.0
per cent from N8,895.99 billion in the
corresponding half of 2019.

The changing liquidity conditions of the
banking
system
reflected
the
fluctuations experienced in the money
market interest rates in the second half
of 2020. The rates were volatile but
stayed within the Standing Facilities
corridor during the review period, thus
reflecting swings in banking system
liquidity. The developments in net
liquidity
position
and
flows
which
culminated in lower monthly average
market rates showed the impact of CBN
Interventions in the bid to support system
liquidity following the outbreak of the
COVID-19
pandemic.
Overall,
the
banking system liquidity was sourced
mainly
from
statutory
monthly
disbursement to Federal, States and
Local governments by the Federation
Account Allocation Committee (FAAC);
maturing government securities and
OMO
bills
owned
by
domestic
individuals and corporations; and CBN
real sector interventions.

The performance of the Nigerian capital
market in the second half of 2020 was
largely bullish, driven primarily by the
equities segment of the market, a
reflection of strengthened investors’
confidence.
Despite
the
negative
impacts of the COVID-19 pandemic
and weak macroeconomic outcomes,
the gains recorded within the review
period were mainly attributable to high
volume of liquidity. The policy of the
Central Bank of Nigeria restricting
access to Open Market Operations
(OMO)
left
investors
with
limited
investment
options,
thereby
encouraging increased investment in
the stock market. Consequently, the AllShare Index (ASI) increased by 64.51 per
cent from 24,479.22 at end-June 2020 to
40,270.72 at end- December 2020.
Similarly, it increased by 50.03 per cent
compared
with
26,842.07
at
endDecember 2019. Market capitalization
(MC) increased by 64.92 per cent from
N12.77 trillion at end-June 2020 to N21.06
trillion at end-December 2020. Also,
compared
with
the
corresponding
period of 2019, it increased by 62.50 per
cent
from
N12.96
trillion
at
endDecember 2019 to N21.06 trillion at endDecember 2020.

Activities in the bond market were
dominated by Federal Government of
Nigeria (FGN) securities in the second
half of 2020. State/Municipal bonds and
Corporate
bond
segments
of
the
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market also recorded some activities
with the former accounting for the least
share by market volume.

In terms of outlook, the economy is
expected to rebound in the first half of
2021 with the gradual phasing out of
lockdowns following optimism around
COVID-19
vaccine
approvals
and
rollouts,
continuous
synchronized
injection of monetary and fiscal stimulus,
an uptick in global commodity prices, as
well as the improvement in the global oil
market although significant downside
risks remain. Headwinds to output
growth include the resurgence of
COVID-19 infection and slow rollout of
COVID-19 vaccines; weakness in trade
and investment; narrow fiscal space,
weakened fiscal buffers and rising
public debt; capital flow reversal;
foreign
exchange
pressures;
infrastructure deficit, and high levels of
insecurity. Accordingly, annual real GDP
growth for 2021 is estimated at 2.15 per
cent up from a contraction of 1.92 per
cent in 2020.

Also, Staff estimates suggest that the
year-on-year
headline
inflation
is
expected to accelerate to 17.85 in first
quarter of 2021, up from 15.75 per cent
in the fourth quarter of 2020 on account
of security challenges associated with
food supply, hike in the price of PMS and
lingering
effect
of
the
COVID-19
restrictions. Inflationary pressures are
expected to persist in the short to
medium-term,
owing
to
security
challenges which have continued to
affect agricultural production; increase
in energy and transport costs; and
further pass-through effect of foreign
exchange rate adjustment. As the Bank
continues
to
manage
liquidity
conditions in the domestic economy,
inflationary
pressures
will
also
be
monitored to ensure that the upside risks
to inflation and downside risks to growth
are minimized.

The primary focus of monetary policy will
tend
towards
striking
a
balance
between supporting the recovery of
output growth, while maintaining stable
price development across inflation,
exchange rate and money market
interest rates.


CBN Monetary Policy Review

CHAPTER TWO
THE GLOBAL ECONOMY

2.1
Global Output
lobal growth was estimated at -
3.5 per cent in 2020, a 0.9
percentage point higher than
projected in the October forecast (IMF
WEO, January 2021). This reflects, on
average
stronger
than-expected
recovery across regions in the second
half of the year. The negative growth,
however, reflected the adverse impact
of COVID-19 pandemic on economic
activities due to containment measures
employed to reduce the spread of the
pandemic. High policy uncertainty and
a further erosion of business and
consumer confidence also contributed
to output contraction.

Output
growth
in
the
advanced
economies was estimated to contract
by 4.9 per cent in 2020 from growth of
1.6 per cent in 2019. The Euro area was
estimated to contract by 7.2 per cent in
2020 from a growth of 1.3 per cent in
2019,
reflecting
a
deeper
than
anticipated slowdown in economic
activity due to weak demand from key
trading partners. Growth rate in 2020
was estimated to contract in major euro
area economies such as Germany (-5.4
per cent), France (-9.0 per cent) and
Italy (-9.2 per cent). Similarly, growth in
United States was projected to contract
by 3.4 per cent in 2020 from a growth of
2.2 per cent in 2019.

For the Emerging and Developing
Economies, output was expected to
contract by 2.4 per cent in 2020 from a
growth of 3.6 per cent in 2019. This was
largely due to COVID-19 induced
disruption
to
domestic
economic
activities and large spillovers from
weaker external demand. Growth in
India declined from 4.2 per cent in 2019
to 1.9 per cent in 2020. Similarly, the
Chinese economy was estimated to
slow to 2.3 per cent in 2020 compared
with 6.0 per cent in 2019.

In Sub-Saharan Africa growth was
projected to contract by 2.6 per cent in
2020 from a growth of 3.2 per cent in
2019.
The
Nigerian
economy
was
estimated to contract by 3.2 per cent in
2020 from a growth of 2.2 per cent in
2019 due mainly to a sharp fall in crude
oil prices resulting from weaker global
demand and containment measures to
fight the spread of COVID–19. Similarly,
the
South
African
economy
was
estimated to contract by 7.5 per cent in
2020 from a marginal growth of 0.2 per
cent in 2019.

2.2
Global Inflation
Inflation in the advanced economies
remained below pre-pandemic levels
during the period under review. In
emerging
market
and
developing
economies, inflation declined sharply in
the initial stages of the pandemic, but
has since picked up in some countries,
due to supply disruptions and increase in
food prices. In advanced economies,
inflation is projected to fall from 1.4 per
cent in 2019 to 0.7 per cent in 2020 due
to the outbreak of COVID-19 and the
associated
reduction
in
consumer
spending.
G
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Inflation in the United States is projected
to decrease to 1.5 per cent in 2020, from
1.8 per cent in 2019 due to lockdowns
and restrictions on movement. Similarly,
in the United Kingdom, inflation is
expected to decline to 0.3 per cent in
2020 from 1.4 per cent in 2019. In the
Euro Area, inflation remains below its 2
per cent target, and is projected to
decline to 0.1 per cent in 2020 from 1.3
per cent in 2019.

In the emerging market and developing
economies, inflation is expected to fall
to 5.0 per cent in 2020, from 5.1 per cent
in 2019 mainly on account of subdued
spending
due
to
the
COVID-19
pandemic.
For
China,
inflation
is
expected to fall to 1.4 per cent in 2020,
from 4.5 per cent in 2019. Whilst in India,
inflation is projected to decline to 3.4
per cent in 2020 from 6.7 per cent in
2019; Brazil projected to record a fall in
inflation to 2.0 per cent in 2020 from 4.3
per cent in 2019.

In Russia, inflation remained below the
central bank target of 4 per cent, with
an estimate of 3.8 per cent in 2020 from
3.0 per cent in 2019. Nigeria’s inflation
increased to 12.8 per cent in 2020 from
12.0 in 2019 amidst rising food prices and
an accommodative monetary policy. In
South Africa, with remission in the spread
of COVID-19, inflation is projected to fall
to 3.3 per cent in 2020 from 3.7 per cent
in 2019.


2.3
Global
Financial
Market
Developments

2.3.1
Money Market and Central Bank
Policy Rates
A survey of fourteen (14) central banks
indicated
a
strong
trend
towards
continued monetary accommodation
by the advanced and emerging market
economies. All these central banks
maintained
their
monetary
accommodation stance without policy
rate adjustment with the exception of
central banks of Egypt, Nigeria, Brazil
and Indonesia that lowered their policy
rate in the review period by 25 basis
points.

Several central banks in advanced
economies lost considerable policy
headroom in the wake of adjustments to
stave off downside risks associated with
the
COVID-19
pandemic,
thus
remaining firmly straddled to the zerolower-bound. They have thus resorted to
quantitative easing and in some cases,
direct liquidity injections. Policy makers
have
expressed
concern
of
the
heightened risk of a debt crisis in the
medium term, due to the ongoing
massive monetary and fiscal policy
accommodation, but the immediate
focus is to guide the global economy
out of recession and return it back on a
path of long term equilibrium growth.

Central banks of major oil exporting
countries like Brazil, Russia and Nigeria
lowered
their
policy
rates
and
simultaneously adjusted their exchange
rates to safeguard their economies from
CBN Monetary Policy Review

the combined oil market and the
COVID-19 pandemic shocks. However,
the decision of the Bank of Indonesia, a
major exporting country to lower its
policy rate in the review period was
meant to indirectly weaken its currency
and boost export revenue (see Table
2.1).

Table 2.1: Policy Rates of Selected Central Banks
Jul 2020 – Dec 2020
Country
July
Aug
Sept
Oct
Nov
Dec
Egypt

Kenya

S. Africa

Ghana

Nigeria

Brazil

USA

Japan

Euro
Area

India

Russia

China

UK

Indonesia

Source: www.cbrates.com

2.3.2
Global Capital Market
Major global stock markets recorded
positive performance in the review
period. In Europe, the UK FTSE 100,
French CAC 40, and German DAX
indices increased by 4.20 per cent, 12.50
per
cent
and
12.00
per
cent,
respectively. In North America, the
United States S&P 500, the Canadian
S&P/TSX Composite and the Mexican
Bolsa indices rose by 21.80 per cent,
13.30 per cent and 16.40 per cent,
respectively. Similarly, in South America,
the Brazilian Bovespa, the Argentine
Merval and the Columbian COLCAP
indices increased by 24.30 per cent,
31.40 per cent and 29.70 per cent,
respectively. In Asia, the Japanese
Nikkei 225, the Chinese Shanghai SE and
the Indian BSE Sensex indices increased
by 23.10 per cent, 16.40 per cent, and
37.20 per cent, respectively. In Africa,
the Nigerian NSE All-Share, the South
African JSE All-Share, the Egyptian EGX
CASE 30 and the Ghanaian GSE All
Share indices also increased by 64.50
per cent, 9.80 per cent, 0.70 per cent
and
2.10
per
cent,
respectively.
Conversely, the Kenyan Nairobi NSE 20
index decreased by 4.30 per cent.
CBN Monetary Policy Review

Table 2.2: Selected International Stock Market Indices as at December 31, 2020
Country
Index
31-Dec-19
30-Jun-20
31-Dec-20
Dec 31, 2019 - Dec
31, 2020 % Change
June 30 - December 31,
2020 % Change
AFRICA
Nigeria
NSE All-Share Index

South Africa
JSE All-Share Index

Kenya
Nairobi NSE 20 Share index

Egypt
EGX CASE 30

Ghana
GSE All-Share Index


NORTH AMERICA
US
S&P 500

Canada
S&P/TSX Composite

Mexico
Bolsa

SOUTH AMERICA
Brazil
Bovespa Stock

Argentina
Merval

Columbia
COLCAP

EUROPE
UK
FTSE 100

France
CAC 40

Germany
DAX

ASIA
Japan
NIKKEI 225

China
Shanghai SE A

India
BSE Sensex

Table 2d: Selected International Stock Market Indices as at December 31, 2020

Source: Bloomberg

2.3.3
Global Commodity Prices
During the review period, global
commodity prices witnessed significant
recoveries owing to increased demand
following the roll-out of various COVID-

vaccines
and
the
attendant
resumption of more economic activities.
Consequently,
the
IMF
primary
commodity price index increased by
25.63 per cent to 125.5 points at endDecember from 99.9 points at end-June
2020. All the commodity sub-indices rose
during
the
review
period.
The
commodity sub-indices of energy, nonfuel, metals, edibles and industrial inputs
all rose by 44.17, 16.35, 36.18, 9.65 and
32.15 per cent, respectively, over the
same period. In the petroleum sector,
actual prices per barrel based on the
OPEC Reference Basket rose by 31.45
per cent to US$50.24 at end-December
2020 from US$38.22 at end-June 2020.

The Food and Agriculture Organization
(FAO) Food Price Index increased by
16.35 per cent to 108.5 points in
December 2020 from 93.25 points in
June 2020. The sub-indices of dairy,
cereals, vegetable oils and sugar all rose
to 109.2, 115.9, 131.2 and 87.1 at endDecember 2020 from 98.2, 96.9, 86.6 and
75.0 respectively, at end-June 2020,
while that of meat fell to 94.8 at endDecember 2020 from 95.2 at end-June
2020.


CBN Monetary Policy Review

2.3.4
Global
Foreign
Exchange
Market
In the second half of 2020, most of the
key
global
currencies
appreciated
against the dollar, in contrast to
depreciation experienced in the first
half. This was largely attributed to
improved economic activities following
the development of COVID-19 vaccines
and easing of restrictions imposed to
contain the spread of the virus.

In Africa, the Nigerian naira, Kenya
shilling and Ghana cedi all depreciated
by 5.25, 2.51 and 1.35 per cent,
respectively.
However,
the
South
African rand and Egyptian pound
appreciated by 22.03 and 2.66 per cent,
respectively.

In North America, the Canadian dollar
and Mexican peso appreciated by 7.44
and 14.25 percent, respectively.


In South America, the Brazilian peso and
the Colombian peso appreciated by
3.32 and 8.80 percent respectively,
while the Argentina peso depreciated
by 16.63 per cent.

In Europe, the British pound and the Euro
appreciated by 10.35 and 8.58 percent
respectively, while the Russian rubble
depreciated by 6.57 percent.

In Asia, the Japanese yen, the Chinese
renminbi
and
Indian
rupee
all
appreciated by 3.49, 8.40 and 3.52
percent respectively.
CBN Monetary Policy Review

Table 2.3: Exchange Rates of Selected Countries (value in currency units to US$)


Currency
31-Dec-19
30-Jun-20
31-Dec-20
Jun 20 - Dec 20
(% App/Dep)
AFRICA
Nigeria
Naira

South Africa
Rand

Kenya
Shilling

Egypt
Pound

Ghana
Cedi

NORTH
AMERICA
Canada
Dollar

Mexico
Peso

SOUTH
AMERICA
Brazil
Real

Argentina
Peso

Colombia
Peso

EUROPE
UK
Pound

Euro Area
Euro

Russia
Ruble

ASIA
Japan
Yen

China
Yuan

India
Rupee

Source: bloomberg
Exchange Rates of Selected Countries (Value in currency units to US$)
CBN Monetary Policy Review

CHAPTER THREE
THE DOMESTIC ECONOMY

3.1
Output in the Domestic Economy
he Nigerian economy in the second
half
of

witnessed
mixed
performance.
The
domestic
economy slipped into recession in the
third quarter of 2020 following two
consecutive
quarters
of
negative
growth, owing to a halt in economic
activities as a result of the lockdown
measures imposed across the country in
order to contain the spread of the
coronavirus disease (COVID-19). The
economy, however, exited recession in
the fourth quarter following sustained
implementation of economic stimulus
by both the monetary and fiscal
authorities. Data from the National
Bureau of Statistics (NBS) showed that
the real Gross Domestic Product (GDP)
contracted by 3.62 per cent (year-onyear) in the third quarter of 2020 in
contrast to the growth of 2.28 per cent
in the corresponding period of 2019 and
a contraction of 6.10 per cent in the
preceding
quarter,
causing
the
economy to slip into recession. This was
largely driven by a sharp contraction in
the oil sector by 13.89 per cent, a 20.38
percentage points decrease compared
with the growth of 6.49 per cent
recorded in the corresponding quarter
of 2019. The decline in oil production as
a result of OPEC+ restriction to spur
prices was largely responsible for the
poor performance of the oil sector.
Average crude oil production fell by
17.73 per cent to 1.67 million barrels per
day (MBPD) in the third quarter of 2020
from 2.03 mbpd in the corresponding
period of 2019. This implied a decline by
7.73 per cent when compared with 1.81
mbpd recorded in the second quarter
of
2020.
The
non-oil
sector
also
contracted by 2.51 per cent in the third
quarter of 2020, in contrast to the growth
of 1.85 per cent in the corresponding
quarter of 2019. The outcome was a
lower contraction when compared with
-6.05 per cent in the preceding quarter
of 2020.

In the fourth quarter of 2020 however,
the economy exited recession owing to
the implementation of the Economic
Sustainability Plan (ESP) of the Federal
Government as well as the sustained
interventions in the real sector by the
Central Bank of Nigeria. Accordingly,
real GDP grew by 0.11 per cent (yearon-year) in the fourth quarter of 2020,
though lower than the 2.55 per cent in
the corresponding period of 2019 and in
contrast to the contraction of 3.62 per
cent in the preceding quarter of 2020.
The output growth was driven mainly by
the performance of the non-oil sector
which grew by 1.69 per cent in the fourth
quarter. The outcome was lower than
the growth of 2.26 per cent recorded in
the corresponding period of 2019 and in
contrast to the contraction of 2.51 per
cent in the preceding quarter of 2020.
The oil sector, however, contracted by
19.76 per cent in the fourth quarter of
2020 in contrast to the growth of 6.36 per
cent in the corresponding quarter of
2019. This, however, implied a deeper
contraction compared with -13.89 in the
preceding
quarter
of
2020.
Oil
production fell further by 22.0 per cent
to 1.56 mbpd in the fourth quarter of
T
CBN Monetary Policy Review

from
2.0
mbpd
in
the
corresponding period of 2019 and by
6.59 per cent from 1.67 mbpd in the
preceding quarter (fig 3.1).

Figure 3.1: Gross Domestic Product Growth Rate
(2019Q1 – 2020Q4)

Source: National Bureau of Statistics (NBS)

3.1.1 DOMESTIC ECONOMIC ACTIVITIES
In the second half of 2020, real GDP
was driven by activities in both oil and
non-oil sectors. In the third quarter of
2020, both the oil and non-oil sectors
contracted
as
reflected
in
the
contraction of the real GDP. The non-oil
sector contracted by 2.51 per cent in
the third quarter of 2020 in contrast to
the growth of 1.85 per cent in the
corresponding period of 2019. The
development was, however, a lower
contraction when compared with -6.05
per cent in the preceding quarter.
Activities
that
accounted
for
the
contraction were: Transportation and
Storage
(-42.98%);
Accommodation
and Food Services (-22.61%); Education
(-20.74); Real Estate (-13.4%); Trade (-
12.12);
Professional,
Scientific
&
Technical Services (-10.31); Others (-
7.53%); Electricity, Gas, Steam & Air
conditioner (-3.66%); and Fishing (-
2.07%). These compares with their
respective growth rates of 18.34, 2.28,
1.19, -2.62, -1.45, -2.62, 1.03, -11.81 and
1.68 per cent in the corresponding
period
of
2019.
Activities
that
moderated the contraction of the nonoil sector in the review period were:
Information
and
Communication
(14.56%): Water supply, sewage, waste
Management
(7.10%);
Public
Administration (3.58%); Financial and
Insurance (3.21%); Construction (2.84%);
Human Health & Social Services (2.84%);
Forestry (2.55%); and Livestock (2.29%)
compared with their respective growth
rates of 9.98, 2.37, 0.61, 1.07, 2.37, 0.86,
3.78
and
0.02
per
cent
in
the
corresponding period of 2019.

The oil sector also contracted by 13.89
per cent, a 20.38 percentage points
decrease compared with the growth of
6.49 per cent in the corresponding
period of 2019. Average crude oil
production fell by 17.73 per cent to 1.67
million barrels per day (mbpd) in the
third quarter of 2020 from 2.03 mbpd in
the corresponding period of 2019. The
outcome was also a decline by 7.73 per
cent when compared with 1.81 mbpd
recorded in the second quarter. The
development was due to decline in oil
production and supply as a result of
OPEC+ restriction to spur prices following
the lull in demand arising from the
outbreak of the coronavirus disease.
During the fourth quarter of 2020, the
non-oil sector, however, grew by 1.69

Q1-2019
Q4-2019
Q3-2020
Per cent
CBN Monetary Policy Review

per cent but lower by 0.57 percentage
point when compared with 2.26 per
cent recorded in the corresponding
period of 2019. The development was
higher by 4.2 percentage points when
compared with the contraction of 2.51
per cent recorded in the preceding
quarter. Activities that drove the growth
of the non-oil sector during the period
included: Quarrying and Other Minerals
(48.42%);
Telecommunications
and
Information Services (17.64%); Cement
(6.59%); Broadcasting (4.42%); Crop
Production (3.68%); Human Health &
Social Services (3.05%); Real Estate
(2.81%);
Motion
Pictures,
Sound
recording
and

Music
production
(2.51%);
Livestock
(2.38%);

Food,
Beverage and Tobacco (2.15%); and
Motor vehicles & assembly (2.02%).
These compares with their respective
growth rates of -5.63, 10.26, 1.13, 2.17,
2.52, -0.56, -3.45, 0.81, -0.20, 2.69 and -
2.13 per cent in the corresponding
period of 2019.

Also, during the fourth quarter, the oil
sector contracted by 19.76 per cent in
contrast to the growth of 6.36 per cent
in the corresponding quarter of 2019.
The development was, however, a
deeper contraction compared with -
13.89 recorded in the preceding quarter
of 2020. Oil production fell by 22.0 per
cent to 1.56 mbpd in the fourth quarter
from 2.0 mbpd in the corresponding
period of 2019. It also fell by 6.59 per
cent compared with 1.67 mbpd in the
preceding quarter.


Figure 3.2: Non-oil Sector Performance (2019Q1 –
2020Q4)

Source: NBS

Figure 3.3: Performance of oil Sector (2019Q1 –
2020Q4)

Source: NBS

3.1.2
Sectoral Analysis
The
key
contributors
to
output
performance in major sectors in the
review period are analysed in this
section.


2019Q1 2019Q3 2020Q1 2020Q3
Per cent
Agriculture
Industry
Services

Q1-2019
Q4-2019
Q3-2020
Per cent
CBN Monetary Policy Review

3.1.2.1 Agriculture
In the third quarter of 2020, growth in
real agricultural output moderated by
0.89 percentage point to 1.39 per cent,
compared to 2.28 per cent recorded in
the corresponding period of 2019. It also
moderated by 0.19 per centage point
compared with 1.58 per cent in the
preceding period. Output growth in the
sector was driven by Forestry which
grew by 2.55 per cent in Q3 2020, a
moderation by 1.23 percentage point
when compared with 3.78 per cent in
the corresponding period of 2019. This,
however, was an improvement by 1.47
percentage point over the 1.08 per cent
growth in the preceding quarter of 2020.
The Forestry subsector was followed by
Livestock which grew by 2.29 per cent in
the third quarter from 0.02 per cent
recorded in the corresponding period of
2019 and 2.26 per cent in the preceding
quarter. Crop production also grew by
1.38 per cent in the third quarter of 2020,
a moderation by 1.03 percentage point
compared with 2.41 per cent in the
corresponding period of 2019. The
development was also a moderation
compared with 1.44 per cent in the
preceding quarter of 2020. The Fishing
sub-sector, however, contracted by
3.75 and 7.75 percentage points to -2.07
per cent in the third quarter of 2020 from
the growth of 1.68 and 5.68 per cent in
the corresponding period of 2019 and
the
preceding
quarter
of
2020,
respectively.

During the fourth quarter of 2020, growth
in real agricultural output improved to
3.42 per cent from 2.31 and 1.39 per
cent in the corresponding period of
2019 and the preceding quarter of 2020,
respectively. Output growth in the
sector was driven mainly by Crop
Production which grew significantly by
3.68 per cent from 2.52 and 1.38 per
cent in the corresponding period of

and
the
preceding
quarter,
respectively. Livestock sub-sector also
grew by 2.38 per cent in the fourth
quarter of 2020 in contrast to the
contraction of 0.20 in the corresponding
period of 2019 and a growth of 2.29 per
cent in the preceding quarter of 2020.
Forestry also grew by 1.24 per cent in the
fourth quarter of 2020, reflecting a
moderation compared with 1.26 and
2.55 per cent in the corresponding
period of 2019 and the preceding
quarter, respectively. The Fishing subsector, however, contracted by 3.6 in
contrast to the growth of 2.33 per cent
in the corresponding period of 2019. The
development
was
a
deeper
contraction compared with -2.07 per
cent recorded in the preceding quarter
of 2020. The share of the agriculture
sector in overall GDP stood at 26.95 per
cent in the fourth quarter compared
with 26.09 and 30.77 per cent in the
corresponding period of 2019 and the
preceding quarter, respectively.


CBN Monetary Policy Review

Figure 3.4: Agricultural Sector Contribution by
Activity (2019Q1-2020Q4)

Source: CBN Statistics Department

3.1.2.1.1 Agricultural Policies and
Institutional Support
During
the
review
period,
the
agricultural sector continued to enjoy a
number of existing and new policies,
reforms and institutional support, as
highlighted below:

3.1.2.1.1.1
The Agricultural Credit
Guarantee Scheme (ACGS)
In the second half of 2020, a total of
10,626 loans, valued at ₦2.84 billion
were guaranteed under the scheme
compared with 9,641 loans, valued at
₦1.48 billion in the first half of 2020. The
development represented an increase
of
10.22
and
91.89
per
cent,
respectively, in the number and value of
loans guaranteed. Also, 14,097 loans
valued at ₦2.25 billion were repaid,
compared with 6,089 loans valued at
₦0.79 billion in the first half of 2020. This
represented an increase of 31.52 and
184.81 per cent in the number and value
of loans repaid, respectively.

3.1.2.1.1.2
N200 Billion Commercial
Agriculture Credit Scheme (CACS)
Under the Scheme, ₦28.34 billion was
disbursed to 23 projects in the second
half of 2020, an increase of 4.61 per
cent, compared with ₦27.09 billion to 15
projects in the first half of 2020. On the
other hand, a total of ₦25.98 billion was
repaid by 284 projects in the review
period, which represented 10.54 per
cent lower than the repayment of
₦29.04 billion by 264 projects in the first
half of 2020.

3.1.2.1.1.3
Micro, Small and
Medium Enterprises Development Fund
(MSMEDF)
In the second half of 2020, the sum of
₦200.00 million was disbursed to 2
projects as against first half of 2020
where there was no disbursement under
the scheme due to the ravaging effects
of COVID-19. Repayments during the
period amounted to ₦2.07 billion which
was lower by 58.35 per cent compared
with the repayment of ₦4.97 billion in the
preceding period.

3.1.2.1.1.4
Anchor Borrowers’
Programme (ABP)
In the second half of 2020, the sum of
₦69.62 billion was disbursed to 203,764
smallholder farmers across the country

Per cent
Crop Production
CBN Monetary Policy Review

to
produce
rice,
maize,
cassava,
cotton,
maize,
ginger,
fish,
onion,
cocoa, soya beans and sesame. This
compares with ₦154.93 billion disbursed
to 897,674 farmers in the preceding
period. Furthermore, a total of 605,279
hectares of land were cultivated,
compared with 1,095,891 hectares in
the first half of 2020. Repayments under
the Programme amounted to ₦15.47
billion in the review period, compared
with ₦22.80 billion in the preceding
period.

3.1.2.1.1.5
Accelerated Agriculture
Development Scheme (AADS)
Under the Scheme, the sum of ₦1.50
billion was disbursed to one (1) State
government-sponsored
projects
for
1,000 farmers in the second half of 2020,
compared with ₦6.00 billion disbursed to
four (4) projects in the first half of 2020.
The projects included rice poultry,
cassava, fish, maize and soya beans.

3.1.2.1.1.6
Agribusiness/ Small and
Medium Enterprises Investment Scheme
(AGSMEIS)
In the review period, ₦62.72 billion was
disbursed to 15,724 projects, compared
with ₦26.62 billion released to 6,727
projects in the first half of 2020. This
represented an increase of 135.61 and
133.74 per cent in value and numbers of
projects, respectively, compared with
the first half of 2020. Repayment in the
review period amounted to ₦92.52
million, compared with ₦27.16 million in
the preceding half year.

3.1.2.1.1.7
Paddy Aggregation
Scheme (PAS)
Under the Scheme, the sum of ₦500.00
billion was released to one (1) project in
the second half of 2020, compared with
₦3.20 billion released to 4 projects in the
first half of 2020. The sum of ₦51.81 billion
was repaid during the second half of
2020 compared with ₦2.08 billion repaid
in the preceding period.

3.1.2.1.1.8
Rice Distribution Fund
(RDF)
In the second half of 2020, there was no
disbursement
and/or
repayment
compared with the sum of ₦1.00 billion
disbursed to six (6) projects in the
preceding half year.

3.1.2.1.1.9
Maize Aggregation
Scheme (MAS)
The Maize Aggregation Scheme (MAS)
is a working capital facility introduced to
improve access to affordable credit for
the purchase of home-grown maize by
maize processors and millers. The broad
objective is to promote national food
security through increased domestic
maize production, stable prices, and
improved profit for farmers. In the
second half of 2020, the sum of ₦200.00
million was disbursed to one (1) project
under the Scheme, compared with the
previous half year when ₦1.00 billion was
disbursed.


CBN Monetary Policy Review

3.1.2.1.1.10
National Food Security
Programme (NFSP)
During the review period, there was no
disbursement under the programme
compared with the sum of ₦9.00 billion
disbursed to two (2) projects in the
preceding period. Repayment in the
review
period
was
₦2.36
billion,
compared with ₦2.85 billion in the
preceding half year.

3.1.2.2 Industry

3.1.2.2.1
Industrial Production
Growth
in
the
industrial
sector
contracted during the review period. In
the third quarter of 2020, the sector
contracted by 6.12 per cent in contrast
to the growth of 3.21 per cent in the
corresponding period of 2019. This was,
however, an improvement compared
with the contraction of 12.05 per cent in
the preceding quarter of 2020. At -13.22
per cent, the Mining and Quarrying subsector was the main driver of the
contraction in the third quarter in
contrast to the growth of 6.19 per cent
by the sub-sector in the corresponding
period of 2019. Under the Mining and
Quarrying,
Crude
Petroleum
and
Natural Gas sub-sector contracted by
13.89 per cent in the review period in
contrast to the growth of 6.19 per cent
in the corresponding period and -6.60
per cent in the preceding quarter. The
outcome was a deeper contraction
when compared with -6.60 per cent in
the preceding quarter of 2020. This was
followed by contractions in Electricity,
Gas, Steam & Air conditioner and
Manufacturing by 3.66 and 1.51 per
cent in the third quarter of 2020,
compared with -11.81 and 1.10 per cent
in the corresponding period of 2019,
and -3.0 and -8.78 per cent in the
preceding quarter, respectively. The
contraction
in
the
sector
was
moderated by growth of 7.10 and 2.84
per cent in Water supply, sewage &
waste Management and Construction
in the third quarter of 2020 compared
with -1.90 and 2.37 per cent recorded in
the corresponding period and 5.71 and
-31.77 per cent in the preceding
quarter.

During the fourth quarter, the industrial
sector contracted further by 7.30 per
cent in contrast to the growth of 2.75 per
cent in the corresponding period of
2019. The development was a deeper
contraction compared with -6.12 per
cent recorded in the preceding quarter.
Mining and Quarrying was the main
driver of the contraction by -18.44 per
cent in the review period in contrast to
the growth of 6.07 per cent in the
corresponding period of 2019 and -13.22
per cent in the preceding quarter. As
usual, the Crude Petroleum and Natural
Gas sub-sector contracted by 13.89 per
cent in the review quarter in contrast to
the growth of 6.19 per cent in the
corresponding period of 2019 and -6.60
per cent in the preceding quarter.
Electricity, Gas, Steam & Air conditioner
and Manufacturing also contracted in
the review quarter by 2.51 and 1.51 per
cent, compared with -7.82 and 1.24 per
cent in the corresponding period of
2019, and -3.66 and -1.51 per cent in the
preceding quarter, respectively. The
CBN Monetary Policy Review

contraction in the sector was, however,
moderated by the growth of 1.92 and
1.21 per cent in water supply, sewage &
waste Management and Construction
in the third quarter of 2020 compared
with 3.52 and 1.31 per cent in the
corresponding period and 7.10 and 2.84
per cent in the preceding quarter. The
share of industrial sector in overall GDP
in the fourth quarter moderated to 18.77
per cent from 20.27 and 21.59 in the
corresponding period of 2019 and
preceding quarter, respectively.

Figure 3.5: Industrial Sector Contribution by Activity
(2019Q1-2020Q4)

Source: CBN Statistics Department

3.1.2.2.2
Industrial
Policy
and
Institutional Support:
The sector benefited from a number of
policy measures, reforms and incentives
in
the
period
under
review
as
highlighted below:

3.1.2.2.2.1
Real Sector Support
Facility (RSSF) Using Differentiated Cash
Reserve Ratio (RSSF-DCRR)
In the period under review, the sum of
₦169.23 billion was disbursed to 42
projects, compared with ₦131.60 billion
disbursed to 55 projects in the first half.
The sum of ₦20.37 billion was repaid in
the second half of 2020 compared with
₦11.65 billion in the preceding period.

3.1.2.2.2.2
Non-oil Export
Stimulation Facility (NESF)
Under this Facility, the sum of ₦2.00
billion was released to one (1) project in
the second half of 2020 compared with
₦9.00 billion disbursed to two (2) project
in the first half of 2020. In addition,
₦750.90 million was repaid compared
with ₦2.85 billion in the preceding
period.

3.1.2.2.2.3
Export Development
Facility (EDF)
During the review period, the sum of
₦50.00 billion was disbursed compared
with the preceding period when there
was no disbursement due to the impact
of COVID-19 pandemic. There was no
repayment in both the review and
preceding periods.

3.1.2.2.2.4
Creative Industry
Financing Initiative (CIFI)
Under the initiative, the sum of ₦1.64
billion was disbursed to 151 projects in
the second half of 2020, compared with

Q1-2019
Q3-2019
Q1-2020
Q3-2020
Per cent
Mining and Quarrying
Electricity,Gas,Steam & Air conditioner
Manufacturing
Water supply, sewage, waste Mang.
Construction
CBN Monetary Policy Review

₦1.10 billion to 160 projects in the
preceding period.

3.1.2.2.2.5
Targeted Credit Facility
(TCF)
During the period under review, the
sum of ₦134.68 billion was disbursed to
319,051 project compared with ₦33.38
billion disbursed to 41,600 projects in the
preceding period.

3.1.2.2.2.6
Health Sector
Intervention Fund (HSIF)
Under the Fund, the sum of ₦50.70
billion was disbursed to 56 projects in the
second half of 2020 compared with
₦20.96 billion disbursed to 15 projects in
the first half. Although significant part of
the projects under this scheme are
currently under moratorium, the sum of
₦775.49 million was repaid in the period
under review.

3.1.2.2.2.7
COVID-19 Intervention
Facility for the Manufacturing Sector
(CIFMS)
In the period under review, the sum of
₦150.37 billion was disbursed to 25
projects compared with ₦137.49 billion
disbursed to 59 projects of struggling
manufacturing companies in the first
half of 2020. Although significant part of
the projects under the facility are
currently under moratorium, the sum of
₦21.95 billion was repaid in the second
half compared with no repayment in
the preceding period as all the project
were under moratorium.

3.1.2.2.2.8
CBN-BOI Industrial
Facility (CBIF)
This intervention was introduced to
support
Nigerian
industrial
sector
towards industrialization. In the second
half of 2020, the sum of ₦200.00 billion
was disbursed compared with the
preceding period where there was no
disbursement.
The
entire
sum
was
disbursed to Bank of Industry (BOI) as a
single obligor.

3.1.2.2.2.9
Textile Sector
Intervention Facility (TSIF)
This Facility aimed at supporting the
entire Cotton, Textile and Garment
(CTG) sub-sector in Nigeria. In the period
under review, the sum of ₦4.00 billion
was disbursed to 2 projects compared
with preceding period when there was
no disbarment.

3.1.2.2.2.10
Power and Airline
Intervention Fund (PAIF)
In the period under review, the sum of
₦3.03 billion was disbursed compared
with the preceding period where there
was no disbarment.

3.1.2.2.2.11
Nigerian Bulk Electricity
Trading - Payment Assurance
Programme (NBET-PAF)
During the review period, the sum of
₦85.58 billion was disbursed compared
with the preceding period when there
was no disbursement due to the impact
of COVID-19 pandemic.

CBN Monetary Policy Review

3.1.2.2.2.12
National Mass Metering
Programme (NMMP)
This programme was introduced in the
first half of 2020 to increase Nigeria’s
metering rate and eliminate arbitrary
estimated billing. Another aim of the
programme was to strengthen the local
meter value chain by increasing local
meter manufacturing, assembly and
deployment
capacity
to
support
Nigeria’s
economic
recovery
to
achieve

per
cent
market
remittance obligations of the DisCos;
and network monitoring capability.

Accordingly, the sum of ₦14.35 billion
was disbursed during the second half to
support
the
procurement
and
installation of 657,562 meters across the
Country to eight obligors. There was no
disbursement during the preceding half
year.

3.1.2.3 Services Sector
During the review period, the Services
sector recorded mixed performance. In
the third quarter of 2020, the sector
contracted by -5.49 per cent in contrast
to the growth of 1.87 per cent in the
corresponding period of 2019 and -6.78
per cent in the preceding quarter. The
contraction in the sector was driven by
Transportation
&
Storage
(-42.98%),
Accommodation & Food Services (-
22.61%), Education (-20.74%), Trade (-
12.12%),
Real
Estate
(-13.40%),
Professional,
Scientific
&
Technical
Services (-10.31%), Other Services (-
15.07%),
Arts,
Entertainment
&
Recreation (-4.67%) and Administrative
and Support Services (-1.21%). These
compares with their respective growth
rates of 18.24, 2.28, 1.19, -1.45, -2.31, -
2.62, 1.03, 2.89 and 3.05 per cent in the
corresponding period of 2019. The
contraction was, however, moderated
by
growth
in
the
Information
&
Communication
(14.56%),
Public
Administration
(3.58%),
Financial
&
Insurance (3.21%) and Human Health &
Social
Services
(2.82%)
sub-sectors
compared with their respective growth
rates of 9.88, 0.61, 1.07 and 0.86 per cent
in the corresponding period of 2019.

In the fourth quarter of 2020, however,
the Services sector grew by 1.31 per
cent, lower compared with 2.60 in the
corresponding period of 2019. The
development was in contrast to the
contraction of -5.49 per cent in the
preceding quarter of 2020. The output
growth in the fourth quarter of 2020 was
driven by Information & Communication
(14.95%),
Human
Health
&
Social
Services (3.05%), Real Estate (2.81%) and
Public Administration (1.80%) sub-sectors
compared with their respective growth
rates of 8.50, -0.56, -3.45 and 0.06 per
cent in the corresponding period of
2019. The growth was moderated by
contractions
in
Accommodation
&
Food Services (-15.03%), Education (-
11.43%), Transportation & Storage (-
5.95%),
Professional,
Scientific
&
Technical
Services
(-5.43%),
Administrative and Support Services (-
5.31%), Other Services (-4.27%) and
Trade (-3.20%). These compared with
their respective growth rates of 2.02,
0.84, -0.80, 055, 1.27, 1.55 and -0.58 per
cent in the corresponding period of
CBN Monetary Policy Review

2019. The share of the Sector in overall
GDP improved to 54.28 per cent in the
first quarter of 2020 from 53.64 and 47.64
per cent in the corresponding period of

and
preceding
quarters,
respectively.

Figure 3.6: Services Sub-Sector Contribution,
2019Q1-2020Q4

Source: Statistics Department

3.1.2.4 Oil Sector
During the second half of 2020, the
performance of the oil sector was
mixed. While the gradual re-opening of
the
economy
across
the
globe
improved oil demand and supply, the
second and third wave of COVID-19
infections and the consequent fresh
rounds of lockdown, weak aggregate
demand and OPEC+ production cuts
affected the performance of the oil
sector. Accordingly, average crude oil
production fell by 17.73 per cent to 1.67
million barrels per day (mbpd) in the
third quarter of 2020 from 2.03 mbpd in
the corresponding period of 2019. The
outcome was also a decline by 7.73 per
cent when compared with 1.81 mbpd
recorded
in
the
second
quarter.
Average crude oil production fell further
by 22.0 per cent to 1.56 mbpd in the
fourth quarter of 2020 from 2.0 mbpd in
the corresponding period of 2019 and
by 6.59 per cent from 1.67 mbpd in the
preceding quarter.

Crude oil prices trended upwards during
the review period, primarily due to
OPEC+ oil production cut following a lull
in oil demand. Consequently, the price
of Nigeria’s reference crude, the Bonny
Light 370API, which stood at US$44.1 per
barrel (pb) in July 2020, rose to US$45.06
pb in August 2020. The second wave of
COVID-19 infection and consequent
lockdown in some regions of the world
affected aggregate demand thereby
weakening crude oil prices to US$40.85
pb in September 2020 and further to
US$39.74 pb in October 2020. The
successful COVID-19 vaccines trials and
the peaceful conduct and outcome of
the US Presidential election as well as the
impact of OPEC+ production restrictions
supported recovery in the prices of
crude oil to US$42.7 and US$50.33 pb in
November
and
December
2020,
respectively. Overall, the average price
of Bonny Light of US$43.79 pb in the
second half of 2020 was slightly above
the Federal Government of Nigeria’s
revised budget benchmark of US$30pb.


Per cent
Q1-2019
Q2-2019
Q3-2019
Q4-2019
Q1-2020
Q2-2020
Q3-2020
Q4-2020
CBN Monetary Policy Review

Figure 3.7: Quarterly Domestic Oil Production and
Export (2019Q1-2020Q4)

Source: NBS

Figure 3.8: Monthly Bonny Light Oil Price, July 2020
– December 2020

Source: CBN Statistics Department

3.2
Domestic Price Developments
In
the
review
period,
inflationary
pressures intensified. The contributory
factors to this development included:
the lingering effects of the upward
review in the Value Added Tax (VAT),
upward adjustments in the petroleum
pump price and electricity tariff, supply
bottlenecks in connection with land
border protection policy, continuing
exchange
rate
pressure,
security
concerns in some farming locations,
and the severe impact of Covid-19
pandemic.
The three inflation measures, namely the
headline, food and core inflation,
maintained a general upward trend in
the
review
period,
with
the
gap
between the headline inflation and the
upper band of the Bank’s indicative
benchmark of 6-9 per cent, widening
significantly.
Price
developments
reflected a range of demand- and
supply-related
factors,
accentuated
mainly by the increase in food prices.
Rising food prices have been linked to
the disruption to farming activities as a
result of insecurity and poor weather
conditions. In addition, the Covid-19
lockdowns
and
the
resulting
complication of the global supply
chains,
elevated
pandemic-related
global uncertainty, concerns about
second wave of Covid-19 infections,
and the delay in the roll-out of Covid-19
vaccines
undermined
global
productivity and output, with serious
adverse effects on Nigeria, a prime
commodity exporter. In addition, the
continuing low oil prices impacted
negatively on the Nigeria’s foreign
exchange earnings, thus leading to
capital reversals and sudden stop. These
developments precipitated exchange
rate-related inflationary pressures.

On the supply side, exchange rate
pressure in the review period was
attributable to the protracted decline in
oil
prices
owing
mainly
to
the
pandemic-induced global economic
slowdown. Exchange rate pass-through
to domestic prices has been significant,
as
cost-push
factors
induced
acceleration in core inflation. Exchange
rate premium widened remarkably in

Q1-2019Q3-2019Q1-2020Q3-2020
Million Barrels Per Day

Jul-20 Aug-

Sep-

Oct-

Nov-

Dec-

US$
CBN Monetary Policy Review

November 2020 owing to significant dip
in reported remittances. The Bank, in
December
2020,
directed
that
all
diaspora remittances to be paid directly
in foreign currency to beneficiaries. The
immediate
impact
of
this
policy
directive was observed through the
narrowing
of
the
exchange
rate
premium from N114/US$ in November
2020 to N84/US$ in December 2020. The
interbank exchange rate stabilized at
N381/US$ throughout the review period.
In addition, external reserves declined
marginally owing to the dwindling
foreign exchange earnings, resulting
from low crude oil receipts. The Bank
sustained
existing
reforms
and
maintained the restriction of access to
foreign
exchange
for

items,
suspended
the
integration
and
collaboration between mobile money
operators (MMOs), Switches, PSPs and
IMTOS on diaspora remittances, such
that only DMBs can pay beneficiaries of
diaspora
remittances
in
foreign
currency. The policy was intended to
centralize
the
transmission
process,
eliminate the multiple layers of unofficial
channels
and
check
diversion
of
remittance inflows.

On the demand-side, activities in the
money
market
weighed
on
price
developments. The Inter-Bank Call and
Open Buy Back (OBB) rates edged
towards the zero-lower bound in the
review
period,
as
cash
reserve
requirements for both private and
public funds, and liquidity ratio were
maintained at their previous levels. The
banking
system
witnessed
ample
liquidity due to maturities, funding
unlocked by the Bank’s credits growth
and pro-growth interventions.

3.2.1
Trends in Inflation
Headline, core and food measures of
inflation maintained upward trajectories
during the period under review. These
three measures of the consumer price
index (CPI) stood at 355.9, 312.6 and
406.4, in December 2020, up from their
respective levels of 330.1, 297.2 and
369.5 in July 2020. Thus, Food inflation
(year-on-year)
increased
by
4.08
percentage points from 15.48 per cent
in July to 19.56 per cent in December
2020. Core inflation, however, rose
marginally by 1.27 percentage point
from 10.10 per cent in July to 11.37 per
cent in December 2020. Consequently,
headline inflation increased by 2.93
percentage points from 12.82 per cent
in July to 15.75 per cent in December
2020 (Figure 3.1 and Table 3.1). Thus, the
major
contributor
to
the
overall
acceleration in consumer prices during
the period was food inflation, while
some sub-components of the core
measure also contributed (Table 3.4).

Table 3.1: Inflation Rates, July – December 2020

Source: Nigerian National Bureau of Statistics data
base
CPI
Y-on-Y 12MMACPI
Y-on-Y 12MMACPI
Y-on-Y 12MMA
Jul 2020 330.10 12.82 12.05
297.20 10.10
9.48 369.50 15.48 14.63
Aug 2020 334.60 13.22 12.23
300.30 10.52
9.64 375.70 16.00 14.87
Sep 2020
339.5 13.71 12.44
303.20 10.58
9.77 382.70 16.66 15.13
Oct 2020 344.70 14.23 12.66
307.00 11.14
9.96 390.20 17.38 15.42
Nov 2020 350.30 14.89 12.92
309.10 11.05 10.14 8398.20 18.30 15.75
Dec 2020 355.90 15.75 13.25
312.60 11.37 10.31 406.40 19.56 16.17
Headline Inflation
Core Inflation
Food Inflation
CBN Monetary Policy Review

Figure 3.9: Headline, Core and Food Inflation Rates
(July – December 2020)
Source: Nigerian National Bureau of Statistics data
base

3.2.1.1 Headline Inflation
The major components of headline
inflation increased during the second
half of the year. The main driver of
headline inflation in the review period
was Food and Non-Alcoholic Beverages
which increased from 8.68 per cent to
11.47 per cent and Transport which also
rose from 0.64 per cent to 0.77 per cent
over the same period. However, the
price of Housing, Water, Electricity, Gas
and Other Fuels decreased from 1.30
per cent to 0.45 per cent between July
and December 2020, (Table 3.2 and
Figure 3.4). In general, headline inflation
rose from 12.82 per cent in July to 15.75
per cent in December 2020.

The
price
developments
reflected
largely, the impact of the continuing
acceleration in food prices and the
implementation of measures to combat
the
COVID-19
pandemic.
The
increments in both electricity tariff and
pump price of fuel were some of the
other underlying factors for the rise in
headline inflation in the period under
review. Other causative factors were:
loose policy stance of the CBN and its
increased intervention in the real sector,
disruptions
to
food
supply
chain,
exchange rate adjustment, occasioned
by the declining oil receipts and
worsening capital inflow reversals. In
addition,
the
heightened
global
economic uncertainties due to COVID19, fiscal and quasi-fiscal activities,
implementation of border protection
policies,
and
negative
shocks
to
commodity prices, due to weak global
demand; worsening spate of armed
banditry,
terrorist
activities
and
kidnapping as well as herdsmen and
farmers
clashes,
which
adversely
affected
food
supply
chain,
all
contributed in stoking domestic prices.

Table 3.2 Major Components of Headline Inflation
((Y-on-Y), July - December 2020
Source: Nigerian National Bureau of Statistics data
base

Figure 3.10: Major Components of Headline
Inflation (Y-on-Y), July - December 2020

Source: Nigerian National Bureau of Statistics data
base
CPI
Y-on-Y
12MMA CPI
Y-on-Y
12MMA
Jan 2019 276.60

Feb 2019 278.62

Mar 2019 280.81

Apr 2019 283.46

May 2019 286.61

Jun 2019 289.69

HeadlineCore (Y- Food (Y-on-Y)
Jul 2020
12.82
10.10
15.48
Headline Inflation
Core Inflation

Jul

Aug

Sep

Oct

Nov

Dec

Per cent
Headline (YCore (Y-on-Y
Food (Y-on-Y
Headline
Food &
NonAlcoholic
Bev.
Furnishin
gs,
Househol
d
Equipme
nt & HH
Maint.
Health
Transpor
t
Communi
cation
Recreatio
n &
culture
Educatio
n
Restaura
nt &
Hotels
Miscellan
eous
Goods &
Services
Jul '20

AUG '20

Sept. '20

Oct. '20

Nov. '20

Dec '20

%change
(Jan - Jul


0.02
0.01
0.01
CBN Monetary Policy Review

On a month-on-month basis, headline
inflation increased from 1.25 per cent in
July to 1.61 per cent in Dec 2020. The
major
driver
of
month-on-month
headline inflation were the prices of
food and non-alcoholic beverages,
which rose from 0.87 per cent in July to
1.19 per cent in December; Clothing
and Footwear rose from 0.07 per cent in
July to 0.08 per cent in December;
Housing, Water, Elect. Gas & Other Fuels
also rose from 0.12 per cent in July to
0.13 per cent in December 2020 (Table
3.2 and Figure 3.10).

Table 3.3: Major Components of Headline Inflation
(M-on-M), July - December 2020
Source: Nigerian National Bureau of Statistics
data base

Figure 3.11: Major Components of Headline
Inflation (M-on-M), July – December 2020

Source: Nigerian National Bureau of Statistics data
base

3.2.1.2 Food Inflation
Food inflation (year-on-year) rose from
15.48 per cent in July to 19.56 per cent in
December 2020, an increase of 4.08
percentage points. The main driver was
the price of farm produce which rose by
2.41 percentage points from 7.82 to
10.23 per cent. Similarly, processed food
rose by 1.67 percentage points from
7.66 per cent in July to 9.33 per cent in
December 2020. The increase in the
price of processed food was accounted
for, by the rise in the prices of garri yellow
sold loose, fish and sea food, and meat
by 0.25, 0.18 and 0.12 percentage point,
respectively. Farm produce was driven
majorly by yam, potatoes and other
tubers (0.54 per cent), rice local sold
loose (0.32 per cent) and rice agric sold
loose (0.27 per cent). Food shortage as
a result of social unrest and security
concerns
remained
the
major
challenge underlying the upsurge in
food inflation. Other complementary
factors included: higher transportation
costs due to the rise in average pump
price
of
fuel,
increased
cost
of
processing due to higher energy tariffs,
implementation of border protection
policy, and loose monetary policy
stance of the Bank. The pressure on the
exchange rate leading to exchange
rate adjustments also mounted pressure
on
imported
food
prices
with
a
corresponding pass-through to food
inflation during the period.
Headline
Food &
NonAlcoholic
Bev.
Furnishing
s,
Househol
d Equip
&HH
Maint.
Health
Transport
Communi
cation
Recreatio
n &
culture
Education
Restaura
nt &
Hotels
Miscellan
eous
Goods &
Services
Jul '20

Aug '20

Sep '20

Oct '20

Nov '20

Dec '20

%Chang
e (Jul -
Dec

CBN Monetary Policy Review

Table 3.4: Major Components of Food Inflation (Y-on-Y), July – December 2020

Source: Nigerian National Bureau of Statistics data base


Figure 3.12: Major Components of Food Inflation
(Y-on-Y), July – December 2020

Source: Nigerian National Bureau of Statistics data
base

Consistent with the increasing year-onyear
trend,
month-on-month
food
inflation in general, increased by 0.53
percentage point from 1.52 per cent in
July to 2.05 per cent in December 2020.

The price of processed food rose by 0.12
percentage point from 0.80 per cent in
July 2020 to 0.92 per cent in December
2020. In the same period, the price of
farm produce rose by 0.40 percentage
point from 0.73 per cent to 1.13 per cent.
Thus, the increase in food inflation was
due to increases in both processed food
and farm produce, with the latter being
the main driver. The key driver of the
increase
in
the
processed
food
category was meat which rose by 0.03
percentage point, while that of farm
produce was rice agric sold loose (0.13
percentage points).

Per cent
Food
Processe
d Food
Meat
Fish and
Sea
Food
Oil &
Fats
Garri
White,
Sold
Loose
Garri
Yellow,
Sold
Loose
CBN Monetary Policy Review

Table 3.5: Major Components of Food Inflation (M-on-M), July – December 2020

Source: Nigerian National Bureau of Statistics data base

Figure 3.13: Major Components of Food Inflation
(M-on-M), July – December 2020

Source: Nigerian National Bureau of Statistics data
base

3.2.1.3 Core Inflation
Core inflation (year-on-year) rose from
10.10 per cent in July to 11.37 per cent in
December 2020, an increase of 1.27
percentage points. The performance
was driven by processed food (0.55
percentage point), Housing, water,
electricity, gas and other fuels (0.33
percentage
point),
Clothing
and
footwear
(0.11
percentage
point),
Transportation (0.11 percentage point),
and Health (0.04 percentage point). All
components of core inflation increased
in the review period (Table 3.6 and
Figure 3.8). The rise in processed food,
transportation, health, clothing and
footwear,
and
housing,
water,
electricity, gas and other fuel, which
drove the increase in core inflation was
due to the lingering effects of COVID-19
pandemic and slowdown of economic
activities arising from the glut in the
supply of commodities/services. The
increments in both electricity tariff and
pump price of fuel were some of the
underlying factors for the rise in core
inflation. Other causative factors were:
loose policy stance of the CBN and its
increased intervention in the real sector,
exchange rate adjustment occasioned
by the declining oil receipts and
worsening capital reversals, heightened
global economic uncertainties due to
COVID-19, implementation of border
protection
policies,
and
negative
shocks to commodity prices, due to
weak global demand.

Per cent
Food
Processed
Food
Meat
Fish and
Sea Food
Oil & Fats
Garri White,
Sold Loose
Garri
Yellow, Sold
Loose
Farm
Produce
Vegatables
CBN Monetary Policy Review

Table 3.6: Major Components of Core Inflation (Y-on-Y), July – December 2020

Source: Nigerian National Bureau of Statistics data base


Figure 3.14: Major Components of Core Inflation
(Y-on-Y), July – December 2020

Source: Nigerian National Bureau of Statistics data
base

Similarly, on a month-on-month basis,
core
inflation
increased
by
0.35
percentage point from 0.75 per cent in
July to 1.10 per cent in December 2020.
Processed food was the major driver of
the rise in core inflation, increasing from
0.31 per cent in July to 0.46 per cent in
December 2020 (Table 3.7 and Figure
3.9).


Table 3.7: Major Components of Core Inflation (M-on-M), July – December 2020

Source: Nigerian National Bureau of Statistics data base


Per cent
Core
Processed
Food
Housing,Wate
r, Elect.Gas &
Other Fuel
Clothing &
footwear
Transport
Furnishings,
Household
Equip &HH
Maint.
CBN Monetary Policy Review

Figure 3.15: Major Components of Core Inflation
(M-on-M), July – December 2020

Source: Nigerian National Bureau of Statistics data
base

3.2.2
Seasonally-Adjusted Inflation
The actual and seasonally-adjusted
measures of headline inflation trended
upwards in the review period, reflecting
the
increasing
inflationary
trend
witnessed during the first half of 2020
(Table 3.8 and Figure 3.10). Actual
headline inflation continued to reflect
the general price level in the economy,
trending above the seasonally-adjusted
headline
inflation
throughout
the
second half of 2020. The overall upward
trend in both actual and seasonallyadjusted measures of inflation were
attributed to the COVID-19 pandemic,
food
shortages
due
to
security
challenges
and
border
protection
policy, loosening of monetary policy
stance/ lower market interest rates,
increasing
fiscal/quasi
fiscal
interventions
exchange
rate
price
adjustment, fuel and energy price
fluctuations and implementation of 7.5
per cent value added tax (VAT).

Table 3.8: Actual and Seasonally Adjusted
Headline Inflation, July – December 2020
Year
Inflation
SA Inflation
Jul-20
12.82
12.05
Aug-20
13.22
12.23
Sep-20
13.71
12.44
Oct-20
14.23
12.66
Nov-20
14.89
12.92
Dec-20
15.75
13.25
Source: Nigerian National Bureau of Statistics data
base and CBN

Figure 3.16: Actual and Seasonally Adjusted
Headline Inflation, July – December 2020

Source: Nigerian National Bureau of Statistics data
base and CBN

3.2.3
Key
Factors
that
Influenced
Domestic Prices
During the review period, inflationary
pressure was primarily influenced by the
net effect of cost-push, demand-pull
and
moderating
factors.
The
key
highlights of these factors included: the
impact of measures to contain the
Covid-19
pandemic,
supply
side

Per cent
Core
Processed
Food
Housing,W
ater,
Elect.Gas
& Other
Fuel
Clothing &
footwear
Transport
Furnishings
,
Household
Equip &HH
Maint.
Education

Jul-20 Aug-20Sep-20 Oct-20 Nov-20Dec-20
Inflation
SA Inflation
CBN Monetary Policy Review

bottlenecks resulting from shutdown of
economic activities as well as partial
border protection measures, exchange
rate pressures, increase in fuel costs due
to partial removal of subsidy, sustained
increase in food prices, owing to
decrease
in
agricultural
output
stemming from insecurity in most parts of
the north, continued efforts by the Bank
to improve real sector activities through
several
intervention
programs,
and
increase in electricity tariff. Others
included: the liquidity effects of capital
releases from the budget, as well as the
impact of festive and other seasonal
activities.

3.2.3.1 Demand-side Factors
The upward trend in headline inflation
was influenced by demand side factors
in the review period. Capital releases for
infrastructural
projects
and
other
contracts,
real
sector
intervention
programmes
and
the
Bank’s
accommodative
monetary
policy
stance boosted naira liquidity in the
system and hence aggregate demand.
Demand pressure on foreign exchange
for tradable goods, despite sustainance
of measures by the Bank in managing
foreign exchange demand, exerted
pressure on the exchange rate resulting
in rate adjustments to stabilise the
market. The pass-through of the resulting
exchange rate adjustment mounted
inflationary pressure. The net impact of
these factors was a significant and
sustained
increase
in
inflationary
pressures.


3.2.3.2. Supply-side Factors
The
supply-side
factors
that
exacerbated
inflationary
pressures
especially on food, during the review
period
included
partial
border
protection
measures
and
partial
lockdown due to second wave of
Covid-19 pandemic, insecurity in most
part of the north which created supply
side disruptions. In addition, the recent
fuel price policy created volatility in
prices and increase in the price of
electricity.

3.2.3.3 Moderating Factors
The steady increase in the supply of
foreign exchange in the second half of
2020 was among the factors that
moderated domestic prices as well as
energy prices. Other factors included
the improved performance of the nonoil sector, especially, agriculture and
manufacturing, which were supported
through
various
intervention
programmes of the Bank. In addition,
the effective implementation of the
Economic Recovery and Growth Plan
provided a strategic roadmap for the
economy and helped to restore investor
confidence. Government support of the
real sector including efforts to improve
ease
of
doing
business
and
implementation of other policies to
boost
productivity,
enhanced
aggregate demand and confidence in
the Nigerian economy.


CBN Monetary Policy Review

3.3
Monetary Policy and Liquidity
Management
During the second half of 2020,
monetary policy was influenced by
developments
in
the
global
and
domestic
economic
and
financial
environments. On the global front, the
protracted lockdown in countries across
several regions of the world following
the
second
wave
of
COVID-19
infections as well as the absence of
effective
treatment
of
the
virus
continued
to
drag
global
output
recovery. Headwinds arising from the
COVID-19 pandemic were: persistent
decline in global aggregate demand
and supply; disruptions in global supply
chain and trade; rising sovereign and
corporate debts; heightened financial
market vulnerabilities; low prices of
crude oil and other commodities; slow
recovery in supply chain networks; and
rising unemployment.

On the domestic scene, the economy
continued
to
witness
uncertainties
arising from the COVID-19 pandemic
and fluctuations in crude oil prices. The
domestic economy slid into recession in
the third quarter of 2020, following two
consecutive quarters of contraction in
output. Factors from the domestic front
that influenced monetary policy were:
disruptions to key supply channels due
to security challenges from herderfarmer clashes; banditry/kidnapping;
and poor power supply. Other factors
include the disruptions to supply chains
following restriction of movements to
curb the spread of the COVID-19
pandemic; adverse weather conditions,
which resulted in flooding of farmlands;
the adjustment of the exchange rate; as
well as the pass-through to domestic
prices following the depreciation in the
exchange rate.

3.3.1
Monetary Policy Responses to
Evolving Economic Conditions
During the second half of 2020,
monetary policy management was
targeted at positioning the economy to
cope with developments from the
global and domestic economic and
financial environments. The second
wave of COVID-19 infections and
lockdowns in several countries as well as
weak crude oil prices were the major
global developments which influenced
demand and supply. The second wave
of
infections
created
uncertainties
towards the control of the pandemic
and the return of economic activities to
the path of sustainable growth. The oil
market continued to witness fluctuations
arising from weak demand and rising
supply, forcing the OPEC+ to impose
restrictions on crude oil output in order
to
support
prices.
Others
were:
disruptions in global supply chain and
trade;
persisting
decline
in
global
aggregate
demand
and
supply;
heightened
financial
market
vulnerabilities;
rising
unemployment;
and rising sovereign and corporate
debts.

The domestic economy was faced with
the challenges of negative/ weak
output growth, high inflation and rising
unemployment.
Other
challenges
included: disruptions to supply chains
CBN Monetary Policy Review

following restriction of movements to
curb the spread of the pandemic;
adverse weather conditions, which
resulted
in
flooding
of
farmlands;
exchange
rate
depreciations;
banditry/kidnapping; and poor power
supply.

These challenges and the desire to
achieve the Bank’s objective of price
stability conducive to sustainable and
inclusive
growth
were
the
key
considerations that shaped monetary
policy in the second half of 2020.

The monetary authority continued with
its interventions to reflate the economy,
improve aggregate supply and drive
down inflation. Recent interventions
were
largely
in
the
areas
of
Manufacturing, Agriculture, Electricity &
Gas,
Solar
Power
and
housing
constructions among others. So far, total
disbursements
from
the
Bank’s
interventions in the wake of the COVID19 pandemic amounted to N3.5 trillion
including: Real Sector Funds, (N216.87
billion);
COVID-19
Targeted
Credit
Facility (TCF), (N73.69 billion); AgriBusiness/ Small and Medium Enterprise
Investment Scheme (AGSMEIS), (N54.66
billion); Pharmaceutical and Health
Care Support Fund, (N44.47 billion); and
Creative Industry Financing Initiative
(N2.93 billion). Under the Real Sector
Funds, a total of 87 projects that
included

Manufacturing,

Agriculture and 13 Services projects
were funded. In the Health Care sector,

projects
which
included

pharmaceuticals and 25 hospital and
health care services were funded.
Under the Targeted Credit Facility,
120,074 applicants received financial
support for investment capital. The AgriBusiness/Small and Medium Enterprise
Investment
Scheme
(AGSMEIS)
intervention has been extended to a
total of 14,638 applicants, while 250 SME
businesses, predominantly the youths,
have benefited from the Creative
Industry Financing Initiative. In addition
to these initiatives, the CBN was set to
contribute over N1.8 trillion of the total
sum of N2.30 trillion needed for the
Federal Government’s 1-year Economic
Sustainability Plan (ESP), through its
various financing interventions using the
channels
of
Participating
Financial
Institutions (PFIs).

The Bank in a bid to diversify the sources
of
foreign
exchange
reserves,
developed a Gold Purchase Framework
under
the
Federal
Government’s
Presidential
Artisanal
Gold
Mining
Development Initiative to help create
jobs and to strengthen and stabilise the
naira.

The establishment of the Infrastructure
Corporation
of
Nigeria
Limited
(InfraCorp) led by the CBN is aimed at
leveraging local and international funds
for
rebuilding
critical
infrastructure
across the country. The entity, which will
be wholly focused on Nigeria and
Nigerians will be co-owned by the CBN,
the Africa Finance Corporation (AFC)
and the Nigeria Sovereign Investment
Authority
(NSIA),
but
exclusively
managed
by
an
Independent
Infrastructure Fund Manager (IIFM) that
will mobilize local and foreign capital to
CBN Monetary Policy Review

support the Federal Government in
building
the
transport
infrastructure
required to move agriculture and other
products to processors, raw materials to
factories, and finished goods to markets.
The sum of N15 trillion was projected
over 5 years for the initial stage of the
project.

Further, the Bank’s policy on Loan-toDeposit ratio also resulted in a significant
growth in credit to various sectors from
N15.57 trillion to N19.33 trillion between
end-May 2019 and end-August 2020, an
increase of N3.77 trillion. This growth in
credit was mainly to manufacturing
(N866.27
billion),
consumer
credit
(N527.65 billion), oil & gas (N477.65
billion), agriculture (N287.11 billion) and
construction (N270.97 billion).

3.3.2
Monetary
Policy
Committee
Meetings
The Monetary Policy Committee (MPC)
met three times in the second half of
2020, namely in July, September and
November.
The
key
considerations
during the July meeting were: the
utmost need for both the monetary and
fiscal authorities to collaborate for the
optimally synergise towards reviving the
economy; address rising inflationary
pressures; and exchange rate instability.
Based on the foregoing, the July MPC
decided by a vote of eight members to
hold the MPR, while two members voted
for a reduction. All members voted to
retain all the other policy parameters.
During the September 2020 meeting,
the MPC enumerated factors likely to
exert upward pressure on prices to
include the prevalence of security
challenges in the country, adverse
weather conditions causing flooding in
some farming regions, increase in
petroleum pump price, deregulation in
electricity tariff, low crude oil price and
exchange
rate
adjustment.
The
Committee
stressed
the
need
to
address the structural supply-side issues
that put upward pressure on production
cost and depressed economic growth.
It also expressed concerns over the rising
public debt profile and urged the fiscal
authority
to
strengthen
its
debt
management strategy, explore other
sources
of
revenue,
as
well
as
enhanced
efficiency
in
public
expenditure. The MPC was faced with
the policy dilemma of whether to pursue
the primary objective of price stability or
focus
on
output
growth,
which
contraction in the second quarter of
2020.

In view of the foregoing, the September
MPC decided to reduce the MPR by 100
basis points to 11.5 per cent and adjust
the asymmetric corridor to +100/-700
around the MPR, while leaving all other
parameters unchanged.

At the November 2020 meeting, the key
considerations centred around tailwinds
imparting upward pressure to domestic
prices and key headwinds to output
growth. The MPC noted the continued
uptick in inflation driven by supply side
disruptions arising from the COVID-19
pandemic and other legacy factors. It
also noted that the contraction had
bottomed out, since it moderated
significantly from -6.10 to -3.62 per cent
CBN Monetary Policy Review

in the third quarter of 2020. On balance,
the MPC was of the view that, although
all three options of tightening, holding,
or loosening offer some benefits to the
economy, the hold option was desirable
at
this
meeting.
Accordingly,
the
November MPC voted to retain: the
MPR at 11.5 per cent; the asymmetric
corridor of +100/-700 basis points around
the MPR; CRR at 27.5 per cent; and
Liquidity Ratio at 30 per cent.

The communiqués of the MPC meetings
are contained in the appendix.

3.3.3
Instruments
of
Liquidity
Management
In the second half of 2020, the
instruments used by the Bank to achieve
its objective of price and monetary
stability remained: the Monetary Policy
Rate (MPR); the Cash Reserve Ratio
(CRR); Liquidity Ratio; Open Market
Operations
(OMO);
and
Discount
Window
Operations.
These
were
occasionally
complemented
with
interventions in the foreign exchange
market.

3.3.3.1 Monetary Policy Rate (MPR)
The
Monetary
Policy
Rate
(MPR)
continued
to
be
the
Bank’s
key
instrument for signalling monetary policy
stance and management in the review
period. It was reduced by 100 basis
points to 11.5 per cent in September
2020, while the asymmetric corridor was
also adjusted from +200/-500 to +100/-
700 basis points around the MPR during
the review period. The reduction was
meant to sustain the trajectory of the
economic recovery and reduce the
negative impact of COVID-19.

3.3.3.2 Open Market Operations (OMO)
In the review period, the primary tool for
liquidity management remained, the
Open Market Operations (OMO). OMO
sales decreased by 5.45 per cent to
N6,138.58 billion in the second half of
2020 from N6,492.30 billion in the
preceding half of 2020. The outcome
was also a decrease of 31.00 per cent
from
N8,895.99
billion
in
the
corresponding half of 2019(Table 3.9).

Table 3.9: OMO Bills Auction (January – December,
2020) (N’billion)

Source: CBN Financial Market Department


Date

% Change
Jan
3,070.42 2,193.52
-29%
Feb
3,474.13 1,575.64
-55%
Mar
2,158.57 673.38
-69%
Apr
841.21 676.19
-20%
May
1,152.67 114.00
-90%
Jun
1,130.64 1,259.57
11%
1st Half
11,827.64
6,492.30
-45%
Jul
1,348.83
392.76
-71%
Aug
608.11
1,037.67
71%
Sep
1,801.03
1,171.79
-35%
Oct
1,962.21
988.67
-50%
Nov
1,446.31
1,022.11
-29%
Dec
1,729.50
1,525.58
-12%
2nd Half
8,895.99
6,138.58
-31%
Cumulative Figure
20,723.63
12,630.88
-39%
CBN Monetary Policy Review

Figure 3.17: OMO Bills Auction (January –
December, 2020

Jan-20
Feb-20
Mar-20
Apr-20
May-20
Jun-20
Jul-20
Aug-20
Sep-20
Oct-20
Nov-20
Dec-20
N'Billions

Source: CBN Financial Market Department

3.3.3.3 Reserve Requirements
In the second half of 2020, the Bank
deployed reserve requirements namely:
the Cash Reserves Ratio (CRR) and
Liquidity Ratio (LR) to complement MPR
and OMO auctions. The Monetary Policy
Committee sustained the CRR at 27.5
per cent and maintained Liquidity Ratio
at 30.0 per cent, to curb the excess
liquidity in the banking system.

3.3.3.4 Standing Facilities
In the second half of 2020, the deposit
money banks (DMBs) continued to
access
the
standing
facilities
(lending/deposit) window to meet their
daily
liquidity
requirements.
The
asymmetric corridor which defines the
window in the market was maintained
at +100/-700 basis points around the
MPR.

Under the Window, the requests for
Standing
Lending
Facility
(SLF)
decreased by 44.92
per cent to
N1,827.09 billion in the second half of
2020 from N3,317.40 billion in the first half.
This also reflected a decrease of 75.79
per cent from N7,548.37 billion in the
corresponding half of 2019 (Table 4.2).
The volume of deposits under the
Standing
Deposit
Facility
(SDF)t,
however, increased by 34.70 per cent to
N4,164.78 billion in the second half of
2020 from N3,091.78 billion in the first half
of 2020. When compared with the
corresponding half year of 2019, there
was a marginal increase, of 2.27 per
cent from N4,072.20 billion (Table 3.10).
Transactions at the Window resulted in a
net deposit of N2,337.69 billion in the
second half of 2020 compared with a
net lending by the Bank of N225.62
billion and N3,476.17 billion in the
preceding
and
corresponding
half
years. The developments indicated the
existence of excess liquidity in the
banking system.

Table 3.10: CBN Standing Lending Facility (January
2019 – December 2020) (N’billion)
Date

% Change
Jan
3,232.63
580.77

Feb
3,328.80
510.27

Mar
1,955.75
957.34

Apr
2,011.93
277.93

May
896.82
398.84

Jun
715.33
592.25

1st
Half
12,141.26
3,317.40
-72.68%
Jul
1,508.97
1,570.18

Aug
3,201.93
112.72

Sep
1,497.88
14.39

Oct
343.57
37.11

Nov
720.58
22.94

Dec
275.44
69.75

2nd
Half
7,548.37
1,827.09
-75.79%
Total
19,689.63
5,144.49

Source: CBN Financial Market Department

CBN Monetary Policy Review

Figure 3.18: Standing Lending Facility (July –
December 2020)

Source: CBN Financial Market Department

Table 3.11: CBN Standing Deposit Facility (January
2019 – December 2020) (N’billion)

Source: CBN Financial Market Department


Figure 3.19: Standing Deposit Facility (July -
December, 2020)

Source: CBN Financial Market Department

3.3.3.5 Foreign Exchange Intervention
There was continued pressure on the
foreign exchange market in the second
half of 2020, which arose from the shock
to the oil market compounded by the
COVID-19 pandemic. Declining foreign
exchange inflows continued to be a
major challenge during the review
period. In order to increase supply, the
Central Bank moved to stop foreign
exchange leakages through diaspora
remittances, by adopting new policy
measures to boost efficient flow of
remittances by encouraging the use of
official channels. This would further
deepen the foreign exchange market,
provide more liquidity, and create more
transparency in the administration of
diaspora remittances into Nigeria.

Similarly, to ensure prudent use of
foreign exchange, the Bank introduced
‘Product Price Verification Mechanism’
and directed that payments for all
Forms ‘M’, letters of credit and other
forms of payment be made to the

Jul Aug Sep Oct Nov Dec
N'Billions
SLF
Date

% Change
Jan
976.66
618.49

Feb
704.41
523.41

Mar
1,402.26
356.80

Apr
1,056.76
601.53

May
2,178.21
549.50

Jun
1,748.92
442.05

1st Half
8,067.22
3,091.78
-61.67%
Jul
1291.45
459.49

Aug
361.43
593.42

Sep
405.56
838.22

Oct
710.75
734.51

Nov
555.34
794.31

Dec
747.67
744.83

2nd Half
4,072.20
4,164.78
2.27%
Total

Jul
Aug
Sep
Oct
Nov
Dec
N'Billion
CBN Monetary Policy Review

‘ultimate
supplier
of
products’
by
passing third parties.

Total
foreign
exchange
supply
decreased by 32.51
per cent to
US$6,957.28 million in the second half of
2020 from US$10,308.01 million in the first
half of 2020. The development also
represented a decrease of 50.70 per
cent
compared
with
US$14,113.31
million in the corresponding period of
2019 (Table 3.12). The decrease in
supply was due to the continued effect
of the COVID-19 pandemic.

Table 3.12: Foreign Exchange Supply by the CBN
(US$ Million)

Source: CBN Financial Market Department

Figure 3.20: Total FX Supply (including Forward
Sales) (July – December, 2020)

Source: CBN, Financial Market Department
3.3.4 Developments
in
Monetary
Aggregates
In the review period, the performance
of major monetary aggregates was
mixed, relative to their benchmarks.
Broad money supply (M3) grew below its
indicative benchmark for 2020 in view of
the
Bank’s
restriction
of
non-bank
agents from participating in OMO bill
auctions. The other measure of broad
money supply (M2), however, grew
above its benchmark as maturing OMO
securities were not rolled over, thus
increasing the demand deposit portion
of narrow money supply (M1). The
growth in broad money supply reflected
the behaviour of its key components
namely, Net Domestic Assets (NDA) and
Net Foreign Assets (NFA).

Net Domestic Assets (NDA) contracted,
relative to its benchmark in the review
period.
Its
key
component,
Net
Domestic
Credit
(NDC)
grew
moderately, driven by growth in both
private sector and government credit,
NFA grew below its benchmark in the
review period, driven primarily by the
monetary authority’s foreign assets,
mostly the COVID-19 loans and grants
from abroad.

3.3.4.1 Broad Money (M3, M2)
The broad measures of money supply
(M3 & M2) grew in the review period. M3
grew by 9.42 per cent to N38,673.64
billion at end-December 2020 from
N35,345.80 billion at end-June 2020.
When
compared
with
the
endDecember 2019 level of N34,850.88
Date

%
Change
Total FX Supply
(including Forward Sales)
Total FX Supply
(including Forward Sales)
Jan
1,480.92
1,604.27
Feb
1,932.96
3,364.39
Mar
1,159.78
3,344.29
Apr
1,244.32
674.87
May
1,455.05
639.76
Jun
1,115.47
680.43
1st Half
8,388.50
10,308.01
22.88%
Jul
2,160.21
593.33
Aug
3,160.16
699.92
Sep
1,985.79
1,229.16
Oct
1,908.88
1,492.34
Nov
2,317.46
1,119.27
Dec
2,580.81
1,823.26
2nd Half

Jul
Aug
Sep
Oct
Nov
Dec
US$'Million
Total FX Supply (including Forward
Sales)
CBN Monetary Policy Review

billion, it decreased by 10.97 per cent.
The M3 growth rate at end-December
2020 was below the 2020 indicative
growth target of 15.70 per cent.
Similarly, M2 grew by 17.98 per cent to
N37,957.59 billion at end-December
2020 from N32,171.34 billion at end-June
2020.
Compared
with
the
endDecember 2019 level of N28,759.34
billion, it increased by 31.98 per cent.
The annual M2 growth was much higher
than
the

indicative
growth
benchmark of 8.42 per cent.

The increase in M2 was primarily driven
by increase in M1 by 49.54 per cent and
quasi money by 20.87 per cent owing to
the prohibition of the non-bank public
from investing in OMO bills. Thus, the
proceeds of matured OMO bills were
not rolled over but became part of M1
deposits or reinvested in other near
money instruments.

Figure 3.21: Money Supply (M1), (M2) and (M3)
(July - December 2020)

Source: CBN Statistics Department
Figure 3.22: Growth in Money Supply (M1), (M2)
and (M3) (July - December 2020)
Source: CBN Statistics Department

3.3.4.2 Narrow Money (M1)
Narrow Money (M1) increased by
30.48 per cent to N15,923.94 billion at
end-December 2020 from N12,204.25
billion
at
end-June
2020.
It
also
increased by 49.54 per cent compared
with N10,648.41 billion at end-December
2019. The annual M1 growth of 49.54 per
cent was higher than the 2020 indicative
growth benchmark of 44.91 per cent
(Figures
3.21
and
3.22).
The
performance of M1 was attributable to
the significant increase in Demand
Deposits by 15.41 per cent, owing to the
inability of DMBs to roll-over matured
CBN bills held on behalf of the non-bank
public.

3.3.4.3 Net Foreign Assets (NFA)
Net Foreign Assets (NFA) increased by
10.00 per cent to N8,3334.32 billion at
end-December 2020 from N7,576.75
billion at end-June 2020. Compared
Jul
-

Au
g-

Se
p-

Oc
t-

No
v-

De
c-

MONEY SUPPLY
(M1)
1277 1313 1355 1419 1481 1592
MONEY SUPPLY
(M2)
3333 3426 3496 3572 3650 3795
MONEY SUPPLY
(M3)
3681 3611 3599 3611 3658 3867


N''Billions
MONEY SUPPLY (M1)
MONEY SUPPLY (M2)
MONEY SUPPLY (M3)
Jul
-

Au
g-

Se
p-

Oc
t-

No
v-

De
c-

MONEY SUPPLY
(M1)

23.3 27.3 33.3 39.2 49.5
MONEY SUPPLY
(M2)
15.4 18.6 21.1 23.7 26.4 31.4
MONEY SUPPLY
(M3)
5.63 3.64 3.28 3.64 5.02

N''Billions
MONEY SUPPLY (M1)
MONEY SUPPLY (M2)
MONEY SUPPLY (M3)
CBN Monetary Policy Review

with the end-December 2020 figure of
N5,944.46 billion, NFA increased by 40.20
per cent. This annual growth rate of NFA
at end-December 2020 was marginally
below the 2020 indicative growth target
of 44.91 per cent. The performance of
NFA below its benchmark in the review
period was driven largely by Claims on
Non-Residents
in
the
Monetary
Authority’s Account.

3.3.4.4 Net Domestic Assets (NDA)
Net Domestic Assets (NDA) increased
by 9.26 percent to N30,339.31 billion at
end-December 2020 from N27,769.05
billion at end-June 2020. Compared
with the end-December 2019 figure of
N28,906.42 billion, NDA grew by 4.96 per
cent. The annual growth in NDA was far
higher than the 2020 indicative growth
benchmark of -0.66 per cent.

Net Domestic Credit (NDC) increased
by 13.40 per cent, driven largely by
credit to the private sector which
increased by 13.34 per cent owing to
the
Bank’s
regulatory
measure
to
improve lending to the real sector as
well
as
its
development
finance
interventions. These interventions were
targeted at improving the flow of credit
to critical sectors of the economy in the
light
of
weak
performance
and
heightened uncertainties associated
with the COVID-19 pandemic. Credit to
government also increased by 13.58 per
cent, due to increase in Federal
government expenditure to curb the
COVID-19 pandemic. The moderate
performance
of
NDA
was
also
attributable to the behaviour of Other
Items
Net
(OIN)
with
moderated
increase of 1.58 per cent.

Figure 3.23: Net Domestic Assets (NDA) (June -
December 2020)

Source: CBN, Statistics Department

Figure 3.24: NDA, NDC and Other Assets (Net)
(June – December, 2020)

Source: CBN Statistics Department


Jul
Aug
Sept
Oct
Nov
Dec
NDA 28726 27445 28416 28387 28777 30339

Jul
Aug
Sep
t
Oct
Nov
Dec
Net Domestic
Assets
28725.727445.2
28415.928386.528777.230339.3
Net Domestic
Credits
39849.538792.3
39429.639537.140194.141636.3
Other Assets
Net

Net Domestic Assets
Net Domestic Credits
Other Assets Net
CBN Monetary Policy Review

3.3.4.5 Credit to Government (Cg)
Credit to Government (Cg) increased
by 29.40 per cent to N11,469.18 billion at
end-December 2020 from N8,863.20
billion at end-June 2020. Compared
with the end-December 2019 figure of
N10,098.14 billion, it grew by 13.58 per
cent. The annual growth of Cg at endDecember 2020 was significantly higher
than the 2020 indicative growth target
of -2.06 per cent. The significant
increase in credit to government is the
outcome of Government’s expenditure
to curb the COVID 19 pandemic.

3.3.4.6 Credit to the Private Sector (Cp)
Cedit to the private sector (Cp)
increased by 3.37 per cent to N31,669.74
billion at end-December 2020 from
N29,183.70 billion at end-June 2020.
Compared with the end-December
2019 figure of N26,616.74 billion, it grew
by 13.34 per cent. The annual growth in
Cp at end-December 2020 was below
the 2020 indicative growth target of
18.61 per cent. If the increase in
government borrowing continues, this
may lead to the crowding out effect of
government
borrowing
on
private
sector as witnessed in the recent past.


Figure 3.25: Domestic Credit to Private Sector
(June - December 2020)

Source: CBN, Statistics Department

3.3.4.7 Reserve Money (RM)
Reserve Money (RM) decreased by
1.16 per cent to N13,103.09 billion at
end-December 2020 from N13,257.04
billion at end-June 2020. However, when
compared with its end-December 2019
level of N8,680.95 billion, RM grew by
50.94 per cent. The annual growth in RM
as at December 2020 was below the
2020 indicative growth target of 63.47
per cent. The performance of RM was
attributed to increase in excess reserves
of DMBs owing to their inability to rollover
maturing CBN bills held on behalf of
non-bank economic agents.

Table 3.13a, b presented a summary of
the major monetary aggregates and
their provisional outcomes as at endDecember 2020.


Jul
Aug
Sep
t
Oct
Nov
Dec
Cp 29556 30188 30382 29746 29088 29412

CBN Monetary Policy Review

Table 3.13a: The Performance of Monetary Aggregates
Variables
Actual
Actual
Actual
Benchmark
H1:2020
Deviation
from
Benchmark
Change in
H1, 2020
over H2,

H2
H1
H2

M3 (N'b)

M3 (%)

M2 (N'b)

M2 (%)

M1 (N'b)

M1 (%)

RM (N'b)

RM (%)

NDC (N'b)

NDC (%)

Cg (N'b)

Cg (%)

Cp (N'b)

Cp (%)

NFA (N'b)

NFA (%)

NDA (N'b)

NDA (%)

Source: CBN, Statistics Department


CBN Monetary Policy Review

Table 3.13b: The Performance of Monetary Aggregates and their Implications
S/N
Monetary
Aggregates
Performance
Implication

Overall
Monetary
Aggregates
Mixed-
The mixed performance is indicative of
growing
uncertainties
and
weakening
economic
fundamentals.
The
improved
performance of NFA which is not due to
improved export revenue is a major concern
for policy.

Broad
Money (M3,
M2)
Mixed
While M3 performed below its benchmark, M2
grew significantly above its target, providing
mixed policy signals. The behaviour of M2
appears consistent with the prevailing uptrend
in inflation.

Narrow
Money (M1)
Strong
and
above
target
The strong performance is not indicative of
improved economic activities, but merely the
result of a portfolio shift arising from the inability
of DMBs to reinvest matured OMO bills on
behalf of the non-bank public. This concern is
further amplified by the weak signals from
other monetary aggregates, consistent with
weakening economic activities.

Net
Foreign
Assets (NFA)
Moderately
below target
The performance of NFA which is not due to
improved export revenue is a major concern
for policy.

Net
Domestic
Assets (NDA)
above
target
The performance in NDA reflects sharp growth
in money supply especially M2.

Credit to the
Govt (Cg)
Above
target
The performance of credit to government
reflects Government’s expenditure to curb the
COVID-19 pandemic. The overperformance
of credit to government could lead to the
crowding-out of private sector investments.

Credit to the
Private
Sector (Cp)
Below target
Although private sector credit was below
target, its quantum relative to the credit to
government increased, reflecting improved
credit delivery as a result of the Bank’s Loanto-Deposit policy as well as CBN interventions
to channel credit to targeted sectors.
Source: CBN, Statistics Department

CBN Monetary Policy Review

3.4
Domestic
Financial
Markets
Developments
In the second half of 2020, the Nigerian
financial
market
experienced
considerable
volatility,
owing
to
lingering shocks from the COVID-19
pandemic, weak crude oil prices,
soaring
global
debt
and
high
unemployment. The COVID-19 related
shocks resulted in lower fiscal receipts
and acretion to external reserves, which
led to pressure in the foreign exchange
market.

The money market remained active in
the review period, with market rates
reflecting liquidity conditions in the
banking system. The rates remained
within the Standing Facilities corridor,
reflecting fluctuations in banking system
liquidity.

Stability in the foreign exchange market
was
supported
by
sustained
interventions by the CBN to stabilize the
naira in the midst of demand pressures
for foreign exchange. The All-Share
Index (ASI) and Market Capitalization
(MC) increased during the second half
of 2020; likely reflecting improved
investor sentiment in response to the
mitigating measures adopted by the
monetary and fiscal authorities to
contain the pandemic.

3.4.1
The Money Market
The changing liquidity conditions of the
banking
system
reflected
the
fluctuations experienced in the money
market interest rates in the second half
of 2020. The rates were volatile but
remained within the Standing Facilities
corridor during the review period, thus,
reflecting swings in banking system
liquidity. The developments in net
liquidity
position
and
flows,
which
culminated in lower monthly average
market rates reflected the impact of
CBN Interventions in the bid to support
system liquidity following the outbreak of
the COVID-19 pandemic. Since the
prevalence of the pandemic in March
2020, money market rates have further
eased as liquidity was boosted by FGN
coupon payments and liquidity infusion,
through
CBN
interventions
in
the
banking system. This was intended to
enhance job creation and provision of
credit facilities to stimulate business
activities for both corporates and
individuals, particularly those that lost
their goods and business premises to
hoodlums,
during
the
recent
end
Special
Anti-robbery
Squad
(SARS)
protest.

Liquidity conditions in the banking
system continued to influence money
market rates in the review period. The
Open Buy Back (OBB) rate declined
progressively as a result of rising liquidity
levels in the banking system, while there
were
no
transactions
at
the
uncollateralized inter-bank call window.
Consequently, the monthly weighted
average OBB rate declined to 1.88 per
cent in October 2020 from 3.50 per cent
in September 2020.

Overall, the financial system's liquidity
were sourced from statutory monthly
disbursement
to
states
and
local
CBN Monetary Policy Review

governments
by
the
Federation
Account Allocation Committee (FAAC);
maturing government securities and
OMO
bills
owned
by
domestic
individuals and local corporations; and
real sector CBN interventions.

The interbank segment of the market
witnessed less trading days in the
second half of 2020, which resulted in
lower transaction volume compared
with the OBB segment. The continuing
preference
for
the
collateralized
transactions could be attributed to the
high-risk perception of money market
participants of open market lending
and the oligopolistic nature of the
market.

3.4.1.1 Short-term Interest Rate
Developments
The short-term rates reflected the
prevailing liquidity conditions in the
banking system. In addition to the
various Monetary Policy Committee
decisions, the banking system liquidity
was influenced by the statutory FAAC
disbursements, OMO, NTB transactions,
and maturing government securities.
The CBN foreign exchange interventions
aimed at moderating FOREX demand
pressures also played a role in money
market liquidity and the short-term
interest rates.

However, as COVID-19 pandemic takes
its toll on various sectors of the
economy, its impact on the financial
sector and in particular, the market for
short-term
instruments
becomes
important, as it contributes to the shortterm interest rates developments in a
number of ways. For example, the
injection of monetary and fiscal stimulus,
which aims to boost economic activities
and stabilise Nigerian financial markets
during the pandemic, is expected to
drive the rates down. While these efforts
were geared towards mitigating the
impact of the crisis on the financial
market, they also serve as a trajectory to
achieving monetary policy objectives.

In
the
period
under
review,
the
interbank
call
segment
recorded
significantly low transaction volumes
compared with the Open Buy Back
(OBB) segment. Rates in both segments
appeared considerably volatile, fell
significantly and remained at low levels.
Specifically, the OBB rate dropped from
10.12 per cent in July 2020 to 1.09 per
cent in December 2020. Similarly, the
interbank call rate dropped from 6.25
per cent in July to 1.25 per cent in
December 2020.

Table 3.14: Weighted Average Monthly Money
Market Interesr Rates (Jul – Dec, 2020)
PERIOD
Interbank OBB SDF MPR
SLF
NIBOR-
30 DAYS


Jul-20
6.25
10.12 7.50 12.50 14.50
5.04
Aug-20
5.74
8.22 7.50 12.50 14.50
3.79
Sep-20
2.00
3.64 4.50 11.50 12.50
2.43
Oct-20
0.00
1.88 4.50 11.50 12.50
1.83
Nov-20
0.00
1.13 4.50 11.50 12.50
0.68
Dec-20
1.25
1.09 4.50 11.50 12.50
0.57
Average
3.81
4.35 5.50 11.83 13.17
2.39
Source: CBN, Statistics


CBN Monetary Policy Review

Figure 3.26: Weighted Average Monthly Money
Market Interest Rates (Jul – Dec, 2020)


3.4.1.1.1
The Interbank Call Rate
The uncollateralized interbank call
segment experienced quite negligible
activities. Trading volumes were minimal
and relatively inconsequential as a
greater number of days without trading
activities were recorded. This reflects
increased risk perception and market
participants’ persistent preference for
the
collateralised
OBB
transaction.
Against this backdrop and also due to
an increasing level of liquidity in the
system,
the
interbank
call
rates
consistently fell from 6.25 per cent in July
2020 to 5.74 per cent in August 2020. As
this persisted, the monthly average rate
decreased sharply to 2.00 per cent in
September 2020. There were, however,
no transactions at the interbank call
segment in October and November
2020. The drop in rate within this period
may be linked to the Bank’s decision at
the September MPC meeting to reduce
the MPR by 100 basis points from 12.50
to 11.50 per cent and adjust the
asymmetric corridor from +200/-500
basis point to +100/-700 basis points
around the MPR. However, by the end
of December 2020, the interbank call
rate rebounded, settling at 1.25 per
cent.

As represented in Figure 3.27, the
analysis of the daily interbank rates for
the period showed that for the days of
trading activities, the call rate ranged
from 0.25 per cent in August 2020 to
peak at 18.00 per cent in July 2020. The
peak of 18.00 per cent in July was
largely due to a tight liquidity conditions
impacted by a slowdown in economic
activities
owing
to
the
COVID19
pandemic, and mopping up activities
through OMO transactions. The 0.25 per
cent recorded in August on the other
hand,
signalled
improved
system
liquidity conditions by the Bank. This is in
a bid to stimulate economic activities by
targeting access to loans by businesses
and individuals during the current
pandemic. The average interbank call
rate for the period July – December was
3.81 per cent, which represented a
decrease from the 7.11 per cent
recorded in the first half of 2020.

Figure 3.27: Daily Interbank Call Rate (Jul – Dec
2020)

Jul-20 Aug-20 Sep-20 Oct-20 Nov-20Dec-20
Per cent (%)
Interbank
OBB
MPR
SDF

Per cent %
CBN Monetary Policy Review

3.4.1.1.2
The Open Buy Back (OBB)
Rate
The OBB segment of the market
continuously witnessed a higher number
of transactions compared with the
interbank call segment, in the period
under review. The monthly weighted
average
OBB
rate
fluctuated
downwards between 10.12 and 1.09 per
cent. The monthly weighted average
rate of the OBB fell from 10.12 per cent
in July 2020 to 8.22 per cent in August
2020 suggesting an improvement in
system liquidity. The total inflows from the
net OMO sales, FAAC distributions and
FX sales outweighed the outflows in form
of CRR debits. In addition, the growing
fiscal and monetary injections, coupled
with a decrease in the uncertainties
surrounding the impact of the global
pandemic on the Nigerian economy
accounted for rising liquidity levels in the
banking
system.
Consequently,
the
monthly weighted average of the OBB
rate declined from 3.64 per cent in
September 2020 to 1.88 per cent in
October 2020 and 1.13 per cent in
November 2020.

In December 2020, with development
reflecting more stringent containment
measures,
and
endorsement
of
vaccines
globally,
the
OBB
rate
dropped further closing at 1.09 per cent.


An analysis of the daily rates indicated
that the OBB rate fluctuated between
0.37 and 23.49 per cent between July
and December 2020). The spike of 23.49
per cent observed in July 2020 was
associated with the lingering effect of
withdrawal of liquidity from the banking
system through OMO auctions.

The average OBB rate for the period,
July – December 2020, stood at 4.35 per
cent, which was lower than the 8.19 per
cent recorded in the first half of 2020.

Figure 3.28: Daily Open Buy Back Rate (Jul – Dec
2020)


3.4.1.1.3
The
Nigeria
Interbank
Offered Rate (NIBOR)
The Nigerian money market reference
rate (NIBOR) also showed a downward
trend in the period under review. After a
peak of 5.04 per cent in July 2020, the
rate continued to drop till the end of the
year.
This
signalled
a
progressive
improvement of liquidity conditions in
the banking system. In August, the 30day monthly weighted average NIBOR
stood at 3.79 per cent. It, later, dropped
to 2.43 per cent in September 2020, a
decrease of 136 basis points. The 30-day
monthly
weighted
average
NIBOR
continued its downward slide to 0.68 per
cent in November 2020.

Per cent %
CBN Monetary Policy Review

3.4.2
Foreign Exchange Market
The apex Bank has continued to ensure
exchange rate stability amidst tight
foreign exchange (FOREX) liquidity.
However, the pressure continued to
mount
on
the
Naira
with
further
depreciation
despite
the
Bank’s
intervention at the interbank foreign
exchange market. The intervention was
meant to maintain stability, manage
system
liquidity
and
ultimately
safeguard the Naira and external
reserves against volatility.

The inability of the OPEC plus group to
agree on a significant oil output cut also
heightened uncertainty around oilsupply
and
price.
The
continuous
unfavourable global macro-economic
environment due to the spread of
COVID-19 pandemic further weakened
economic and financial activities, thus
impacting on exchange rate stability.
Though, recent developments depicted
stable oil price, the fear of sudden
weakening of global demand and
possible fall in oil price due to partial
lockdown continued to build-up. The
effect of the international oil price
volatility directly impacts the supply of
foreign exchange. The dwindling foreign
exchange earnings as a result of crude
oil export production cut impacted
negatively on the size of external
reserves and exchange rate stability.
Also of significance was the end-SARS
protest that possibly caused disruption
to the foreign exchange inflows. The
agitations and unrest that characterised
the
protest
caused
uncertainties
amongst investors, particularly foreign
portfolio investors resulting to increased
capital outflow from the economy.

Figure 3.29: Daily Naira/US Dollar Exchange Rate,
July – December 2020

Source: CBN Statistics Department

Within the period under review, the CBN
increased supply to the FOREX market in
order to strengthen the naira. The Bank
also
relaxed
further
restrictions
by
allowing
the
International
Money
Transfer Operators (IMTOs) customers’
access their remittances in foreign
currencies. In a bid to further reduce the
pressure on the value of the naira and
improve the US dollar liquidity, the Bank
adjusted the naira exchange rate
N360.00/US$ to N381.00/US$ in July 2020
making it the second of such adjustment
in the same year.

The Bank’s I&E window also played a
fundamental role in the accessibility of
FOREX for importation of essential items.
In addition, the Bank during the period
under review, maintained its existing
policies among which included:


Direct interventions in the FOREX
market as well as injections

Jul –

Aug –

Sep –

Oct –

Nov –

Dec –

CBN Monetary Policy Review

through
International
Money
Transfer Operators (IMTOs).


Restriction of FOREX sales for 43
items; and


Systematic monitoring of DMBs
to prevent them from engaging
in speculative activities.

3.4.2.1 Average Exchange Rates
The
interbank
exchange
rate
depreciated by 12.86 per cent from an
average of N337.26/US$ in the first half
of 2020 to an average of N380.37/US$ in
the second half of the year. The second
exchange rate adjustment by the CBN
in
July

accounted
for
the
significant depreciation of the foreign
exchange rates.

Table 3.15: Average Monthly Spot Exchange Rate
(N/US$), Jan 2020 – Dec 2020
MONTH
Interbank
January
306.96
February
306.96
March
326.63
April
361.00
May
361.00
June
361.00
Average
337.26
July
377.19
August
381.00
September
381.00
October
381.00
November
381.00
December
381.00
Average
380.37
Source: CBN Statistics Department

3.4.2.2 End-Period (Month) Exchange
Rates
During the period under review, the
Interbank foreign exchange market
experienced major movements in the
exchange rate. The movements at the
interbank
segment
were
relatively
stable over the period.

The Naira depreciated by 11.08 per
cent against the dollar at the interbank
segment in second half 2020 closing at
an
average
of
N381/US$
when
compared with N342.99/US$ in first half
2020.

The policy direction of the Bank is to
ensure
exchange
rate
stability;
however,
persistent
pressures
have
continued in the market.

Table 3.16: End-Month Exchange Rate (N/US$),
Jan 2020 – Dec 2020
MONTH
Interbank
January
307.00
February
306.95
March
361.00
April
361.00
May
361.00
June
361.00
Average
342.99
July
381.00
August
381.00
September
381.00
October
381.00
November
381.00
December
381.00
Average
381.00
Source: CBN Statistics Department


CBN Monetary Policy Review

3.4.2.3 Nominal
and
Real
Effective
Exchange Rates
The Nominal Effective Exchange Rate
(NEER) showed a depreciation of 5.76
per cent, from an average of 176.46 in
the corresponding second half of 2019
to an average of 187.24 in the current
period. It depreciated by 5.76 percent
when compared with the average of
176.80 percent recorded in the first half
of 2020. On the other hand, the Real
Effective
Exchange
Rate
(REER)
appreciated by 6.47 per cent from an
average of 79.31 in the second half of
2019 to an average of 74.49 percent in
the second half of 2020. A further
analysis with the average of 75.37
recorded in the first half of 2020
indicated that the REER witnessed an
appreciation of 1.18 per cent. (Table
3.17). The continuous depreciation of
the NEER signifies the weakening of the
domestic
currency
against
the
currencies of trading partners, while the
appreciation of the REER implies a loss of
trade competitiveness with Nigeria’s
trading partners (Table 3.17 and figure
3.30).


Table 3.17: Average Nominal and Real Effective
Exchange Rates Indices (July 2019 – Dec 2020)

Source: CBN Statistics Department

Figure: 3.30: Nominal and Real Effective Exchange
Rates Indices (July 2019 – Dec 2020)

Source: CBN Statistics Department

3.4.2.4 Foreign Exchange Flows through
the CBN
Foreign exchange inflow through the
CBN totalled US$15,149.97 million at the
end of second half of 2020. The inflow
represented a significant decrease by
41.87 per cent from the US$25,853.79
million recorded in the second half of
PERIOD
NEER
REER
Jul-19
179.16
81.79
Aug-19
175.26
79.41
Sep-19
174.54
78.37
Oct-19
177.56
79.2
Nov-19
175.8
77.77
Dec-19
179.62
78.92
2019:H2 Average
176.46
79.31
Jan-20
176.39
76.98
Feb-20
174.69
75.80
Mar-20
175.12
75.16
Apr-20
176.50
74.86
May-20
176.99
74.17
Jun-20
181.08
75.22
2020: H1 Average
176.80
75.37
Jul-20
183.31
75.43
Aug-20
184.74
75.20
Sep-20
185.61
74.54
Oct-20
185.69
73.37
Nov-20
188.21
73.20
Dec-20
195.86
75.23
2020:H2 Average

Jan-20
Feb-20
Mar-20
Apr-20 May-20 Jun-20
Jul-20
Aug-20
Sep-20
Oct-20
Nov-20
Dec-20
NEER
REER
CBN Monetary Policy Review

2019. It was also a decline of 39.46 per
cent
when
compared
with
the
US$25,024.98 million in the first half of
2020. On the other hand, outflows
declined by 53.81 per cent from
$32,300.86 million in the second half of
2019 to $14,917.55 million at end-2020.
Moreover, the outflows represented a
significant decrease by 45.40 percent
compared with the $27,321.79 recorded
during the first half of 2020. The analysis
indicated a net outflow of US$232.22
million in the current period compared
with a net outflow of US$6,447.07 million
in the corresponding period of 2019, as
well as the net outflow of $2,296.80 in the
first half of 2020. The significant and
continuous contraction in both inflows
and outflows of forex during the review
period was linked to the drop in crude
oil earnings due to production cut and
the headwinds accompanying the
second
wave
of
the
COVID-19
pandemic.

Table 3.18: Monthly Foreign Exchange Flows
through the CBN (Jul 2019 – Dec 2020)

Source: CBN Statistics Department
Figure 3.31: Monthly Foreign Exchange Flows
through the CBN (Jul 2019 – Dec 2020)


3.4.2.5 Foreign Exchange Flow through
the Economy
Gross foreign exchange inflow to the
economy dropped sharply by 29 per
cent to US$50,937.45 million in the
second half of 2020 from US$72,766.77
million in the corresponding second half
of 2019. It also decreased substantially
by 22.06 percent when compared with
US$65,355.00 million in the first half of
2020. Gross foreign exchange outflows
also dipped by 54.25 per cent to
US$15,828.80 million in the period under
review, from US$34,596.63 million in the
corresponding
period
of
2019.
Compared with US$29,102.13 million at
the end period of first half of 2020, it
reflected a dip by 45.61 per cent. The
development resulted to a net inflow of
US$35,108.65 million compared with the
net inflows of US$38,170.14 million and
US$34,408.19
million
in
the
corresponding period of 2019, and
preceding first half of 2020, respectively.
The fall in the gross foreign exchange
flows
in
the
economy
could
be
attributed
to
the
recent
global
Period
Inflow (CBN)
Outflow
(CBN)
Net Flow
(CBN)
Jul-19
4,747.84
5,540.36
-792.51
Aug-19
3,459.58
5,237.95
-1,778.37
Sep-19
4,152.02
5,425.34
-1,273.32
Oct-19
3,520.49
4,952.03
-1,431.54
Nov-19
4,978.75
5,385.84
-407.09
Dec-19
4,995.11
5,759.35
-764.24
2019 H2 Total
25,853.79
32,300.86
-6,447.07
Jan-20
5,271.65
6,652.58
-1,380.93
Feb-20
5,594.29
5,722.81
-128.52
Mar-20
4,121.73
6,997.01
-2,875.28
Apr-20
5,940.18
3,164.66
2,775.52
May-20
1,991.72
2,184.25
-192.53
Jun-20
2,105.41
2,600.48
-495.06
2020 H1 total
25,024.98
27,321.79
-2,296.80
Jul-20
1,977.68
2,371.01
-1,380.93
Aug-20
2,576.38
2,671.52
-128.52
Sep-20
2,423.87
1,956.65
-2,875.28
Oct-20
1,885.82
2,346.49
2,775.52
Nov-20
1,148.11
1,874.29
-192.53
Dec-20
5,137.91
3,697.60
1,440.31
2020 H2 Total

Jul-19
Aug-19
Sep-19
Oct-19
Nov-19
Dec-19
2019 H2...
Jan-20
Feb-20
Mar-20
Apr-20
May-20
Jun-20
2020 H1...
Jul-20
Aug-20
Sep-20
Oct-20
Nov-20
Dec-20
Inflow (CBN)
Outflow (CBN)
Net Flow (CBN)
CBN Monetary Policy Review

economic headwinds caused by the
unprecedented prevalence of cOVID19 and subsequent outbreak of the
second wave which has heightened
economic uncertainties around the
globe.


Table 3.19: Monthly Foreign Exchange Flows through the Economy
(Jan 2019 – Dec 2020) (US$ Million)

Source: CBN Statistics Department
PERIOD
Inflow
(CBN)
Inflow
(Autonomous)
Total Inflows
Outflows
(CBN)
Outflows
(Autonomous)
Total
Outflow
Net Flow
Net Flow
(CBN)
Net Flow
(Autonomous)
Jan-19

Feb-19

Mar-19

Apr-19

May-19

Jun-19

2019 H1 Total

Jul-19

Aug-19

Sep-19

Oct-19

Nov-19

Dec-19

2019 H2 Total

Jan-20

Feb-20

Mar-20

Apr-20

May-20

Jun-20

2020 H1 Total

Jul-20

Aug-20

Sep-20

Oct-20

Nov-20

Dec-20

2020 H2 Total

CBN Monetary Policy Review

Figure 3.32: Monthly Foreign Exchange Flows
through the Economy
(Jan 2018 – Dec 2020) (US$ Million)

Source: CBN Statistics Department

3.4.3
Capital Market
The Nigerian capital market recorded
a bullish performance in the second half
of 2020, driven primarily by the equities
segment of the market, reflecting
improved
investors’
confidence.
Despite the negative impacts of the
COVID-19
pandemic
and
weak
macroeconomic
fundamentals,
the
gains recorded within the review period
were mainly attributable to high volume
of liquidity. The policy of the Central
Bank of Nigeria restricting access to
Open Market Operations (OMO) left
investors with limited investment options,
thereby
encouraging
increased
investment in the equities market.

3.4.3
Capital Market
The Nigerian capital market recorded
a bullish performance in the second half
of 2020, driven primarily by the equities
segment of the market, reflecting
improved
investors’
confidence.
Despite the negative impacts of the
COVID-19
pandemic
and
weak
macroeconomic
fundamentals,
the
gains recorded within the review period
were mainly attributable to high volume
of liquidity. The policy of the Central
Bank of Nigeria restricting access to
Open Market Operations (OMO) left
investors with limited investment options,
thereby
encouraging
increased
investment in the equities market.

3.4.3.1 Equities Market
The All-Share Index (ASI) increased by
64.51 per cent from 24,479.22 at endJune

to
40,270.72
at
end-
December 2020. Similarly, it increased
by 50.03 per cent compared with
26,842.07
at
end-December
2019.
Market capitalization (MC) increased by
64.92 per cent from N12.77 trillion at endJune 2020 to N21.06 trillion at endDecember 2020. Also, when compared
with the corresponding period of 2019, it
increased by 62.50 per cent from N12.96
at end-December 2019 to N21.06 at
end-December 2020.


Jan-19
Feb-19
Mar-19
Apr-19
May-19
Jun-19
Jul-19
Aug-19
Sep-19
Oct-19
Nov-19
Dec-19
Jan-20
Feb-20
Mar-20
Apr-20
May-20
Jun-20
Jul-20
Aug-20
Sep-20
Oct-20
Nov-20
Dec-20
Total inflows
Total Outflows
Netflow
CBN Monetary Policy Review

Table 3.20: NSE All-Share Index (ASI) and Market
Capitalization (MC) (December 2019 – December
2020)
Date
ASI
MC(Equities)
N’Trillion)
Dec-19
26,842.07
12.96
Jan-20
28,843.53
14.86
Feb-20
26,216.46
13.66
Mar-20
21,300.47
11.10
Apr-20
23,021.01
12.00
May-

25,267.82
13.17
Jun-20
24,479.22
12.77
Jul-20
24,693.73
12.88
Aug-20
25,372.13
13.21
Sep-20
26,831.76
14.02
Oct-20
30,530.69
15.96
Nov-20
35,042.14
18.31
Dec-20
40,270.72
21.06
Source: Nigerian Stock Exchange (NSE)

Figure 3.33: NSE All Share Index (ASI) and Market
Capitalization (MC) (December 2019 - December
2020)

Source: Nigerian Stock Exchange (NSE)


Figure 3.34: NSE ASI and MC (June 2020 –
December 2020)

Source: Nigerian Stock Exchange (NSE)

3.4.3.1.2
Market Turnover
Aggregate stock market turnover in the
second half of 2020 stood at 55.00 billion
shares, valued at N534.07 billion in 586,534
deals. This represents a 31.23 per cent
increase compared to 41.91 billion shares,
valued at N495.65 billion in 567,184 deals in
the first half of 2020. Aggregate stock market
turnover also increased by 65.66 per cent on
a year-on-year basis from 33.20 billion shares,
valued at N420.13 billion in 419,491 deals as
at end December 2019.

Foreign
portfolio
investment inflows
during the period exceeded outflows by
N194.85 billion.

3.4.3.1.3
Sectoral Contribution to
Equity Market Capitalization
In
the
review
period,
market
capitalization was dominated by ‘Other
Sectors’.
The
sector’s
contribution
increased from 22.18 per cent of market
capitalization as at end-June 2020 to
27.27 per cent at end-December 2020.
The dominance of ‘Other Sectors’ in the

Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20
(N' Trillion)
All Share Index
Equities Market Capitalisation (N' Trillion)

Jun-20
Jul-20
Aug-20
Sep-20
Oct-20
Nov-20
Dec-20
(N' Trillion)
All Share Index
Equities Market Capitalisation (N' Trillion)
CBN Monetary Policy Review

review period could be attributable to
the introduction of telecommunications
companies
on
the
exchange.
In
addition,
sectors
that
contributed
significantly
to
overall
market
capitalization were Banking and Food &
Beverages, with market shares of 6.66
per cent and 6.33 per cent, respectively,
at end-December 2020.

Figure 3.35: NSE Market Capitalization by Sector as
at End-June 2020

Source: Nigerian Stock Exchange (NSE)

Figure 3.36: NSE Market Capitalization by Sector
as at End-December 2020

Source: Nigerian Stock Exchange (NSE)


3.4.3.1.4
The
Warren
Buffett
Valuation Metric and Nigeria’s Equities
Market
During the review period, the analysis
of Warren Buffett valuation metric
showed that the Nigerian equities
market was moderately undervalued.
The average valuation metric from
2015Q2 to 2020Q3 for actual is 0.62,
indicating that the stock market in
Nigeria is modestly undervalued.

The average forecast valuation metric
from 2015Q2 to 2021Q3 is 0.88, which
suggests that the stock market is
modestly undervalued for the forecast
period.

The variation of the actual from forecast
for Q2 2020 was -0.26, which is within the
tolerance level.

This development was attributed to the
weak performance of the economy in
Q3 2020 because of the residual effects
of the restrictions on movement and
economic activity implemented across
the country in early Q2 in response to the
COVID-19
pandemic.
The
cautious
lifting of restrictions by government,
including the gradual re-opening of
businesses and travels have buoyed
resumption
of
certain
economic
activities during the period.


NSE Market Capitalization by Sector as at December 31, 2020
Rest of Food and Beverages
Construction
Banking
Insurance
Breweries
Conglomerates
Oil and Gas
industrial goods
Dangote Cement
Dangote Sugar
NASCON (Dangote Salt)
Rest of Building Materials
Agriculture
Personal Household products
Services
MTN Nigeria
Other Sectors
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Figure 3.37: Warren Buffett Valuation of Nigerian
Equities Market

Source: NSE, NBS

3.4.3.2 Bond Market
Activities in the bond market were
dominated by Federal Government of
Nigeria (FGN) securities in the second
half of 2020. There were also some
activities in the State/Municipal bonds
and Corporate bond segments of the
market, with the former recording the
least share by market volume.

3.4.3.2.1 FGN Bonds
The 10-year dollar-denominated bond
yields for Nigeria decreased by 272 basis
points to 0.2 per cent at end-Dec 2020,
from 3.74 per cent at end-June 2020. It
fell by 302 basis points when compared
with 3.04 per cent at end-December
2019, (Figure 3.38).


Figure 3.38: 10-Year U.S. Dollar-denominated Bond
Yield for Nigeria (December 2019 – December
2020)


The yield curve for December 2020
decreased at both the short and long
end of the curve, compared with the
preceding period. The development at
the short end reflects high liquidity level
within the banking system. However,
with a concave shape or positive slope,
the graph suggests that amid economic
recession in the country induced by the
COVID-19
pandemic,
investors’
confidence in the economy may not
have totally waned.

Figure 3.39: FGN Bond Yield Curves: September
30th, 2020 VS. November 30th, 2020 and
December 30th, 2020


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3.4.3.2.2 State/Local Government Bonds
The
sub-national
bonds
market
continued to record low activities during
the review period. For instance, the total
value of outstanding State/ Local
governments bonds decreased by 26.74
per cent from N369.69 billion at endJune 2020 to N270.80 billion at endDecember 2020. It was, also lower when
compared with N354.90 billion recorded
at end-December 2019.

3.4.3.2.3 Corporate Bonds
Activities in the corporate bonds
segment declined during the review
period.
The
value
of
outstanding
corporate bonds as at end-December
2020 decreased by 3.56 per cent from
N526.51billion to N507.75 billion in the
second half of 2020. This development
could be associated with decreased
activities in the sovereign bond market.

3.4.3.3 Overall Analysis of the Nigerian
Capital Market
The value of FGN bonds increased by
21 per cent to N16.72 trillion at endDecember 2020 from N13.78 trillion at
end-June 2020, and higher than the
N12.20 trillion recorded as at end-Dec
2019. FGN bonds accounted for 43.33
per
cent
of
aggregate
market
capitalization as at end-December
2020. The value of state/municipal
bonds,
corporate
bonds
and
supranational
bonds
were
N270.80
billion, N507.79 billion and N1.61 billion,
accounting for 0.70, 1.32 and 0.00 per
cent
of
aggregate
market
capitalization, respectively. The equities
market contributed 54.60 per cent of
aggregate market capitalization at
end-December 2020, while FGN bonds,
state/municipal
bonds,
corporate
bonds
and
supranational
bonds
accounted for the balance of 45.40 per
cent (Figure 3.40).

Figure 3.40: Structure of the Nigerian Capital
Market (December 2020)


CBN Monetary Policy Review

CHAPTER FOUR
ECONOMIC OUTLOOK AND RISKS

4.1
Outlook for Global Output
here are substantial differences in
anticipated growth experiences
across
the
various
economic
regions and individual economies. The
development reflected the evolution of
the pandemic, and uneven impacts on
economies
due
to
variations
in
economic
structures;
access
to
vaccines and other required medical
interventions;
quality
of
medical
infrastructure and the effectiveness of
containment strategies.

After
an
estimated
3.5
per
cent
contraction in 2020, global growth is
projected at 5.5 per cent in 2021. The
estimated contraction for 2020 is 0.9
percentage points higher than the
October WEO forecast. This is largely
due to the more rapid economic
rebound witnessed on average across
regions in the second half of the year.
The 2021 growth projections are up 0.3
percentage
points,
highlighting
improved and supportive policies by the
larger economies on the backdrop of
the
COVID-19
pandemic,
and
expectations of improved economic
activity and trade, due to the rollout of
the vaccines later in the year.

Amongst the advanced economies
such as the United States and Japan;
strengthened fiscal support as well as
earlier anticipated vaccine distributions
and better medical facilities placed
them in better position; compared with
the emerging market and developing
economies. Most advanced countries
have been able to implement certain
measures, aimed at alleviating the
effects of the pandemic, such as equity
injections, loans, guarantees and other
direct tax and spending measures,
including interest rate cuts. However,
recovery paths still differ among the
group. The United Kingdom and the Euro
area are expected to remain below
end-2019 economic activity levels up to
2022, compared with the United States
and Japan that are expected to regain
pre-COVID activity levels in the second
half of 2021. The 2021 forecast for the
United States and Japan were revised
by 2.0 and 0.8 percentage points
respectively relative to the October
2020 WEO projection, largely due to
sustained momentums from end-2020
and other fiscal measures and stimulus
packages. This is in contrast to the Euro
area and the UK’s forecast with slight
downward revisions, reflecting activity
slowdowns towards the end of the year
amidst fears from rising infections and
possible renewed lockdowns. Other
significant E.U. countries projections
include Germany (-0.7 per cent); France
(-0.5 per cent) and Italy (-2.2 per cent).

The Emerging Market and Developing
economies are also projected to chart
differing recovery paths. In China the
Central Bank’s liquidity interventions
have yielded positive recovery results,
as well as effectively implemented
containment measures and forced
public investment response. Turkey’s
growth projections were revised to 6
percentage points in 2021 (representing
a 1 per cent rise the from October 2020
T
CBN Monetary Policy Review

WEO projections). The country’s strong
hospital infrastructure limited the extent
of Covid-19 cases and deaths, coupled
with a series of supportive measures,
both at the micro and macro levels,
including
unemployment
schemes,
unpaid leave subsidies, subsidized credit
lines to individuals and an expansionary
monetary to boost lending. Another
notable revision to the forecast is that of
India (2.7 percentage points for 2021),
reflecting carryover from a strongerthan-expected recovery in 2020 after
lockdowns were eased.

In Latin America, where most countries
are still struggling to contain infections,
the two largest economies, Brazil and
Mexico, are both projected to recover
by 3.6 and 4.3 per cent, respectively, 0.8
percentage
points
higher
than
projected in the October WEO forecast.
The pandemic continues to spread in
Latin America and the Caribbean
(LAC), but economic activity is picking
up. After a deep contraction in April,
activities began a gradual recovery in
May, due to ease of lockdowns with
consumers and firms adapting to social
distancing
and
other
containment
measures.

Oil
exporters
and
tourism-based
economies
within the
group
face
particularly
difficult
prospects
considering
the
expected
slow
normalization of cross-border travel and
the subdued outlook for oil prices. Saudi
Arabia accurately showcases these
impacts, as according to the WEO
October 2020 forecast, the country was
expected to grow by 3.1 per cent in
2021,
with
the
expansion
of
hydrocarbon activity and resumption of
capital projects. However, in its January
2021 WEO update, the IMF revised its
growth projections for Saudi Arabia to
2.6 per cent in 2021 representing a
difference of -0.5 per cent in compared
with the October 2020 WEO projections.
Low oil revenue weighed on Saudi
Arabia's current account balance, with
a projected deficit of US $17.1 billion in
2020, from a surplus of US $47 billion a
year earlier. Saudi Arabia's foreign
exchange
revenues
were
further
impacted by a quasi-ban on Hajj - the
Muslim
pilgrimage,
which
attracts
millions of visitors to the country each
year, as Saudi authorities limited the
entry of foreign nationals to slow the
spread of COVID-19.

In Sub Saharan Africa’s growth forecast
stood at 3.2 per cent in 2021, 0.1
percentage point above October WEO
forecast.
Pre-existing
infrastructural
constraints, such as poor power-supply,
are expected to slow the pace of
economic activities. Debt sustainability
concerns
also
continue
to
linger
especially with intensified borrowing
needs. Wide scale vaccine distribution
in the SSA region is limited by various
challenges such as the high cost of the
vaccines and affordability for fiscallystretched economies to rollout national
vaccine
programmes,
poor
transportation
infrastructure
and
distribution
systems,
weak
health
systems, and outdated or insufficient
cold
storage
systems
to
preserve
vaccines. These constraints could delay
the region’s recovery in the absence of
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international
assistance.
In
Nigeria,
growth recovery is projected at 1.5 per
cent in 2021, –0.2 percentage points
lower
than
the
October
WEO
projections. This is attributed to low oil
prices, reduced production under the
OPEC plus agreement, and declining
domestic demand from the lockdown.
Also, agricultural growth slowed amid
difficulties in transporting inputs and
products to markets.

South Africa’s performance will be
severely affected by the health crisis,
especially being the country worst hit by
the COVID-19 outbreak in the SSA
region. Its output is expected to recover
modestly in 2021, with recovery rate
projected
at
2.8
per
cent,
-0.2
percentage points below the 2020
October
WEO
projections.
This
development would be driven mainly
by the impact of containment measures
leading to a decline in investment,
exports,
and
private
consumption.
However, gradual recovery is expected
to resume as business confidence
responds to growth-enhancing reforms.
Overall,
growth
in
the
group
of
emerging
market
and
developing
economies is forecast at 6.3 per cent in
2021, 0.3 percentage points above the
October 2020 WEO forecast.

Growth among low-income developing
countries is projected at 5.1 per cent in
2021, 0.2 percentage points above the
October 2020 WEO forecast, although
with
differences
across
individual
countries. The strength of the recovery
is projected to vary significantly across
countries, depending on access to
medical interventions, effectiveness of
policy
support,
exposure
to
crosscountry
spillovers,
and
structural
characteristics at the beginning of the
crisis. Many countries, particularly lowincome
developing
economies,
entered the crisis with high debts that
were set to rise further during the
pandemic.
As noted in the October 2020 WEO, the
pandemic is expected to reverse the
progress made in poverty reduction
across the past two decades. About 90
million people across the world are likely
to fall below the extreme poverty
threshold during 2020–21.

Table 4.1 Global Output and Inflation Outlook


2019 2020
2021*
2022*
A. World
Output


World Output

Advanced
Economies

USA

Euro Area

Japan

UK

Canada

Other
Advanced
Economies

Emerging &
Developing
Economies

Emerging
and
Developing
Europe

Latin
America and
the
Caribbean

Middle East
and Central
Asia

Sub-Saharan
Africa

B.
Commodity


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Prices (US'
Dollars)
Oil

Non-fuel

C. Consumer
Prices


Advanced
Economies

Emerging &
Developing
Economies

Source: IMF WEO Update, Jan 2021
*Forecast

4.2
Outlook for Global Inflation
In advanced economies, inflation is
projected to be 1.3 per cent in 2021,
due to the cyclical recovery in demand
as economies reopen from COVID-19
lockdowns and increases in commodity
prices.
Consistent
with
persistent
negative
output
gaps,
inflation
is
expected to remain subdued during
2021–22. In advanced economies, it is
projected to remain generally below
central bank targets at 1.5 per cent.

Inflation in the United States and United
Kingdom is projected to rise to 2.2 and
1.5 per cent, respectively, in 2021, driven
by pent-up demand as consumers
increase spending on items whose
consumptions, they were forced to
delay due to lockdowns and movement
restrictions. In the Euro Area, inflation is
projected to rise to 1.1 per cent in 2021
due to easing of restrictions.

Among
emerging
market
and
developing
economies,
inflation
is
projected at a little over 4 per cent in
2021, which is lower than the historical
average for the group. In China, India
and Brazil, fast administration of COVID19 vaccines and a resumption of
economic activity will cause inflation to
rise to 2.5. ,4.0 and 2.9 per cent,
respectively in 2021.

For sub-Saharan Africa, inflation is
projected to fall to 7.3 per cent in 2021
due to the administration of vaccines
and resumption of economic activities.
Specifically,
inflation
in
Nigeria
is
projected to fall to 11.6 per cent in 2021,
whilst
in
South
Africa,
inflation
is
projected to rebound at 4.3 per cent in
2021.

4.3
Outlook for Domestic Output
Growth
The economy is expected to rebound
in the first half of 2021 with the gradual
phasing out of lockdowns following
optimism around COVID-19 vaccine
approvals
and
vaccine
rollouts,
synchronization of monetary and fiscal
stimuli, uptick in global commodity
prices, as well as the improvement in the
global
oil
market.
The
significant
downside risks to output growth include
the resurgence of COVID-19 infection
and slow rollout of COVID-19 vaccines;
and weakness in trade and investment.
Other risk factors include a narrow fiscal
space, weakened fiscal buffers and
rising public debt; capital flow reversal;
foreign exchange rate pressures and
pass-through; infrastructure deficit, and
high levels of insecurity.

Based on these developments, the
Central Bank of Nigeria (CBN) projected
real GDP to grow by 1.44 and 2.22 per
cent in first and second quarters of 2021,
respectively,
while
annual
output
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growth for 2021 is estimated at 2.15 per
cent from a contraction of -1.92 per
cent in 2020 (Table 4.2.) The projection
for real GDP growth was based on
crude oil prices of US$65 per barrel.

Table 4.2: Possible Variations in Nigeria’s GDP
growth outlook
Economic Sustainability Plan

RGDP-
$45
RGDP-
$50
RGDP-
$55
RGDP-
$60
RGDP-
$65
RGDP-
$70
2020Q1 1.87

2020Q2 -6.10 -6.10 -6.10 -6.10 -6.10 -6.10
2020Q3 -3.62 -3.62 -3.62 -3.62 -3.62 -3.62
2020Q4 0.11


-1.92 -1.92 -1.92 -1.92 -1.92 -1.92
2021Q1f 1.31

2021Q2f 1.58


Source: CBN Staff Estimates


4.4
Outlook for Domestic Inflation
CBN Staff estimates suggest that the
year-on-year
headline
inflation
is
expected to accelerate to 17.85 in the
first quarter of 2021, from 15.75 per cent
in fourth quarter of 2020. This is premised
on anticipated food supply shocks
associated with insecurity, hike in price
of PMS and lingering effects of the
COVID-19
restrictions.
Inflationary
pressures are expected to persist in the
short to medium-term, owing to security
challenges which have continued to
affect agricultural production, increase
cost of energy products (pump price of
PMS and electricity tariff), and passthrough effect of foreign exchange rate
depreciations. As the Bank continues to
manage liquidity conditions in the
domestic
economy,
inflationary
developments will also to be monitored
to ensure that the downside risks to
inflation and growth are minimized.
CBN Monetary Policy Review

Table 4.3: Inflation Forecast
YEAR-ON-YEAR INFLATION RATE

12-MMA INFLATION RATE
Status
Month
Headline
inflation
Food
inflation
Core
inflation
Status
Month
Headline
inflation
Food
inflation
Core
inflation
Actual
Jul-

12.82
10.10
15.48
Actual
Jul-

1.25
0.75
1.52
Aug-

13.22
10.52
16.00
Aug-

1.34
1.05
1.67
Sep-

13.71
10.58
16.66
Sep-

1.48
0.94
1.88
Oct-

14.23
11.14
17.38
Oct-

1.54
1.25
1.96
Nov-

14.89
11.05
18.30
Nov-

1.60
0.71
2.04
Dec-

15.75
11.37
19.56
Dec-

1.61
1.10
2.05
Forecast
Jan-

16.52
11.70
12.63
Forecast
Jan-

1.54
1.12
1.62
Feb-

16.81
12.10
13.06
Feb-

1.04
1.09
0.96
Mar-

17.09
11.79
13.01
Mar-

1.08
0.53
1.54
Apr-

17.01
11.98
13.39
Apr-

0.95
1.09
1.09
May-

17.16
12.06
13.45
May-

1.29
0.95
1.49
Jun-

17.15
12.09
13.54
Jun-

1.20
0.89
1.37

Figure 4.1: Fan Chart of Inflation Forecast

Source: CBN Staff Estimates


Figure 4.2: Inflation Forecast

Source: CBN Staff Estimates


aprmayjun jul aug sep oct novdec jan feb marapr

Actual
12.312.412.612.813.213.714.214.915.716.417.3
Inflation
forecast 12.512. 12.12.713.13.514.114.615.516. 16. 17. 18

Per cent (%)


CBN Monetary Policy Review

4.5
The Outlook for Monetary Policy
in First Half of 2021
The conduct of Monetary Policy in 2021
will continue to be anchored on a
Medium-Term
Framework.
This
will
enable the Bank to consistently anchor
expectations
and
prevent
market
agents
from
overly
engaging
in
speculative activities in response to
existing shocks. In this context, the
primary objective of monetary policy will
reflect striking a balance between
supporting the recovery of output
growth while maintaining stable price
development
across
inflation,
exchange rate and market interest rate.
The Bank will continue to monitor
developments in the global economy
which
influence
the
direction
of
monetary policy in the near to medium
term. The risk to global output growth
includes
the
pandemic
induced
economic
shock
which
is
mainly
characterized by negative shocks to
commodity prices, disruptions to the
global supply chain, exchange rate
volatilities, rising corporate and public
debt, rising levels of unemployment,
tightening financial conditions, and
uncertainty
of
global
economic
policies. Despite these risks, the IMF
(January 2021 WEO Update) forecast
global output growth of 5.2 per cent in
2021, 0.3 percentage points above the
October updated forecast of 5.2 per
cent,
reflecting
optimism
around
COVID-19
vaccines
rollout
and
expectations
of
continuous
policy
support and flexibility across the globe.
Other challenges to the monetary
policy include rising fiscal and monetary
injections to reflate their economy,
sustaining exchange rate stability, high
cost of liquidity management, financial
market volatility and constrained credit
growth. In addition, headline, food and
core inflation are likely to trend slightly
upwards in the near term, due to the
higher cost of food, arising from supply
chain disruptions, insecurity and legacy
structural factors such as the high
energy costs, transport and production
inputs. These issues will continue to
demand close attention and monitoring
in monetary policy implementation.

Growth tailwinds that are expected to
aid monetary policy implementation
include renewed determination by the
fiscal authority to speedily implement
the Economic Sustainability Plan stimulus
of N2.3trillion, improved agricultural
production; and improvement in the oil
market and accretion to reserves
following the recovery in oil prices
largely due to positive updates on
COVID-19
vaccine
approvals
and
rollouts as well as the OPEC+ market
interventions. Further, sustained stability
in
exchange
rate
supported
by
increased foreign exchange earnings
from Nigerian oil export and foreign
portfolio inflow is expected to support
monetary policy implementation.

4.6
The Risks to the Outlook

4.6.1
Risks to Global Output
A positive consensus on the 2021 global
economic outlook is emerging. The
vaccine rollout will begin to reach
critical mass over the medium tern,
CBN Monetary Policy Review

activity will rebound, supported by
accommodative financial conditions
and fiscal support, with lost output
continuing to be recouped into 2022.

Although recent vaccine approvals
have raised hopes of a turnaround in
the pandemic later in the year 2021.
However, renewed waves and new
variants of the virus pose concerns for
the outlook. Amid these uncertainties,
the global economy is projected to
grow 5.5 per cent in 2021 and 4.2 per
cent in 2022. The 2021 forecast is revised
upwards by 0.3 percentage point
relative to the previous forecast in
October 2020, reflecting expectations
of a vaccine-powered strengthening of
activity later in the year and additional
policy support in a few large economies.
The projected recovery for 2021 follows
a severe collapse in 2020 that has had
adverse impacts on women, youth, the
poor, the informally employed, and
those who work in contact-intensive
sectors. The global growth contraction
for 2020 was estimated at -3.5 per cent,
0.9 percentage point higher than
projected in the previous forecast
(reflecting
stronger-than-expected
momentum in the second half of 2020).

In advanced economies, the vaccine
will take several quarters to rollout. There
could be delays and hiccups along the
way. The US is already off to a slower
than expected start, as are several
European countries. The current corona
virus wave will harm economic activity
more
than
previously
envisaged.
Lockdowns in Europe and the enormous
spike in cases in the US will affect
consumption spending, worsening the
outlook, especially for many services
such as restaurants, travel and tourism.
First quarter 2021 decline in real GDP
may not be ruled out. Labour market
scarring may be far more persistent than
anticipated, slowing re-employment.
Participation rate may remain low, and
workers who lost jobs may not have the
skills for new ones.

The advanced economies are asking
too much of monetary policy arming
central banks with more ammunition.
But while continued easing will maintain
loose financial conditions and support
asset prices, any added impulse will be
small. Fiscal policy stepped up in 2020
but will be more conservative in 2021.
The US passed another bill worth almost
5 per cent of GDP. The prospects for
further fiscal support have brightened
with the Democratic Party having the
majority in both houses of congress, but
there are still obstacles in the path to
robust
spending.
Some
nations
in
Europe, such as Spain and Italy, feel that
their fiscal space is constrained, while
others may be reluctant to use theirs.

Solvency problem could be an issue in
2021. Large US firms have been able to
borrow at lower rates on capital
markets, but smaller companies are not
faring as well and face tightening bank
lending standard. Elevated business
leverage could result in increased
bankruptcies and default. European
small-and
medium-sized
enterprises
may face similar constraints.

CBN Monetary Policy Review

China is expected to be a major global
growth engine in 2021 but could face
downside risks. China has shown relative
restraint in its policy support. Monetary
policy focused on maintaining a flow of
credit instead of quantitative easing or
rate cuts. Unfortunately, credit support
has often been directed at state-owned
enterprises, rather than relatively more
dynamic private firms. Authorities have
recently allowed several bonds defaults,
upsetting financial markets. Banks are
reportedly already tightening lending
standards.
Fiscal
policy
has
been
especially cautious in contrast with what
obtained during the global financial
crisis.

China’s rising current account surplus
could become a source of tension. It is
increasing sharply given the relatively
restrained macroeconomic stance, a
collapse in tourism outflow, lower oil and
commodity prices, and strong personal
protective equipment and work-fromhome exports. As a result, Chinese GDP
growth may exceed domestic activity,
absorbing demand from the rest of the
world, which may aggravate global
protectionist pressures.

Other
emerging
markets
are
confronting ongoing constraints. Many
face lost tourism receipts, declining
remittances
and
lower
commodity
revenues. While some have undertaken
quantitative
easing
or
purchased
government debt, their policy space is
far more constrained than those of the
advanced economies. Some countries
like
Turkey,
Brazil,
Argentina,
and
Ukraine, face peculiar problems, while
Mexico has pursued a conservative
policy
stance.
Many
low-income
countries face debt distress.

Sub-Sahara Africa is contending with an
unprecedented health and economic
crisis which jeopardizes years of hardwon development gains and upended
the lives and livelihood of millions. The
outlook for 2021 is broadly unchanged
from the June 2020 update. In 2021, the
regional
growth
should
recover
modestly to 3.1 per cent. This outlook is
subjected to some downside risks,
particularly regarding the path of the
Covid-19 pandemic and the resilience
of the region’s health systems. The risks
are compounded by uncertainty on the
availability of external financing, with
associated needs estimated about $900
billion over 2020-23. Overall, the region’s
outlook
will
be
shaped
by
the
availability of additional financing and
the transformative domestic reforms to
promote resilience (including revenue
mobilization, digitalization and fostering
better transparency and governance),
lift
medium
term
growth,
create
opportunities for a wave of new job
seekers and progress towards the
sustainable development goals (SDGs).

The economy of the MENA countries are
expected to rebound in 2021. Oil
exporters should gain from higher crude
prices and the reduction of OPEC+ cuts,
while countries across the region should
gain from some progress in the vaccine
rollout and stronger demand abroad.
However, the geopolitical tensions,
fragile fiscal positions and uncertainty
around the pandemic pose downside
CBN Monetary Policy Review

risks. The region’s growth in 2021 is
projected at 3.3 per cent.

4.6.2 Risks to Domestic Output
The IMF (January 2021 WEO Update),
has forecast that the Nigerian economy
is expected to recover to 1.5 per cent in
2021. This projection is hinged on the
assumption of strong performance of
the non-oil sector, given the expected
continued weakness of the oil sector in
the near to medium term. In addition to
the impact of COVID-19 pandemic, the
Nigerian economy is confronted with
legacy structural and security issues that
impose a drag on the full recovery of the
economy to its equilibrium long-run
growth path.

4.6.3 Risks to Domestic Inflation Outlook
The major up thrust to headline inflation
remains the food component which has
been on an uptrend due to banditry
and
kidnapping
in
farming
communities, lingering supply chain
disruptions, high logistics costs, poor
road
networks
between
farming
communities and major towns and
cities,
seasonal
shocks
and
other
structural factors as well as the general
uptick in insecurity in both urban and
rural settlements. The hikes in cost of
energy products e.g. petrol pump price
and electricity tariffs together with the
pass-through effect of exchange rate
adjustment is still feeding through the
system and placing upward pressure on
the consumer price inflation.

In summary, the overall outlook for the
domestic economy is confronted with
severe headwinds and thus, the strength
of recovery in the second half of 2021
will primarily depend on improved
sentiment
around
the
efficacy
of
COVID-19 vaccine, access to vaccine
and other medical interventions, the
pace
of
oil
demand
growth,
effectiveness of policy support and
other direct interventions of fiscal and
monetary authorities, normalization of
cross-border travel, and faster pace of
growth in trade and investment. These
headwinds
may
be
mitigated
if
additional fiscal and monetary policy
actions remain effective in managing
expectations and uncertainties to fully
optimize private sector decision-making
and participation.


CBN Monetary Policy Review

Appendices

CENTRAL
BANK
OF
NIGERIA
COMMUNIQUÉ NO. 131 OF THE 274th
MONETARY POLICY COMMITTEE MEETING
HELD ON MONDAY 20TH JULY 2020

1.0
Background
The Monetary Policy Committee (MPC)
met on 20th July 2020, amidst elevated
uncertainties across the world. The
projected global output contraction
was
revised
downward,
as
many
countries had to extend the lockdown
period in the wake of a second wave of
coronavirus infections, and continued
lack of effective treatment or vaccines
for the Novel Coronavirus disease.
However, there is cautious optimism that
the global growth contraction would
reverse to positive growth path by 2021,
as the pandemic is contained, potential
treatment found, and restrictions on
business activities are lifted by most
economies.

The
Committee
reviewed
developments
in
the
global
and
domestic economic environment in the
first half of 2020 and evaluated the
monetary policy options to address
these challenges.
Ten (10) members of the Committee
were in attendance.

Global Economic Developments
Global
output
growth
weakened
further, as a result of the persistent
headwinds
from
the
COVID-19
pandemic.

These
headwinds
comprised: persisting decline in global
aggregate
demand
and
supply;
disruptions in global supply chain and
trade; rising sovereign and corporate
debts; heightened financial market
vulnerabilities; low prices of crude oil
and other commodities; and rising
unemployment.

The Committee noted, with concern,
the IMF’s further downgrade of global
economic contraction to -4.9 per cent
from
-3.0
per
cent
in
2020.
The
downward revision was based primarily
on the amplified negative impact of
COVID-19
pandemic
on
many
advanced
and
emerging
market
economies, as they witnessed extended
lockdown periods and restrictions on
economic activities.

The Committee noted the general
optimism of a V-shaped global growth
trajectory due to the expected early
abatement of the pandemic and the
gradual
resumption
of
economic
activities. However, the Committee
believes that global recovery, while
assured for 2021, is more likely to be a Ushaped one. In this regard, it is not
surprising that the recovery has been
revised downwards from 5.8 per cent to
5.4 per cent in 2021.

The Committee observed the continued
downward trend in inflation in most
Advanced
Economies,
particularly
below the 2.0 per cent long-run target,
despite the huge monetary and fiscal
stimulus injections during the period. The
Committee, however, noted that as the
lockdown eases across the advanced
economies,
aggregate
demand
is
CBN Monetary Policy Review

expected to strengthen and inflation
would pick up to support the expected
output growth. Across the Emerging
Markets and Developing Economies
(EMDEs), the Committee observed the
divergent inflation trends, with most
developing
commodity-exporting
countries recording increase in inflation
compared with other more diversified
economies.
This
development
had
inadvertently
exerted
significant
pressure on the exchange rates of these
economies as the pass-through to
domestic prices has been amplified.
The Committee observed that the
unprecedented
increase
in
public
spending to support households and
businesses,
in
the
wake
of
the
pandemic,
may
spur
inflationary
pressures in some economies, as the
supply shortfalls struggle to meet up with
the demand build up.

Domestic Economic Developments
Available
data
from
the
National
Bureau of Statistics (NBS) showed that
real Gross Domestic Product (GDP) grew
marginally by 1.87 per cent in the first
quarter of 2020 compared with 2.55 and
2.10 per cent in the preceding and
corresponding quarters of 2019. The
performance was largely driven by the
5.06 per cent growth in the oil sector and
1.55 per cent growth in the non-oil
sector. The decline in output growth in
the first quarter was largely attributed to
the twin effect of the decline in oil prices
and the shocks from the Covid-19
pandemic.

The Committee observed the gradual,
but
persistent
decline
in
the
Manufacturing and non-Manufacturing
Purchasing Manager’s Indices (PMI),
below
the
benchmark.
The
Manufacturing PMI declined to 41.1
index points in June 2020 from 42.4 index
points in May 2020. Conversely though,
the non-manufacturing PMI improved to
35.7 index points in June 2020 from 25.3
index points in May 2020. The trend in the
manufacturing and non-Manufacturing
PMI was attributed, largely, to: slower
growth
in
production
levels;
new
domestic orders; employment rate; raw
materials supply; and new export orders.
The Committee noted the staff forecast
of 1.03 per cent contraction in growth in
Q2 2020, on the back of the continued
adverse impact of the pandemic on the
economy.

The Committee expressed concern over
the persistent, albeit marginal, uptick in
inflation for the tenth consecutive
month,
as
headline
year-on-year
inflation rose to 12.56 per cent in June
2020 from 12.40 per cent in May 2020.
The increase in headline inflation was
largely driven by the increase in both
food and core inflation, which rose
marginally to 15.18 and 10.13 per cent in
June 2020 from 15.04 and 10.12 per cent
in
May
2020,
respectively.
The
Committee noted the contribution of
the legacy structural factors in the
persistent uptick in inflationary pressure.
These factors included: disruptions to
key supply channels due to security
challenges from herder-farmer clashes,
banditry/kidnapping,
inadequate
transportation outlay, epileptic power
supply,
and
low
technological
adaptability.
These
factors
have
CBN Monetary Policy Review

compounded
the
supply
chain
challenges.

The Committee reiterated the need for
a robust fiscal policy strategy to attract
private investment and capital, to
finance the huge infrastructure deficit in
Nigeria, and strengthen the existing
initiatives by the federal government
and the CBN in this direction.

The
Committee
recognized
the
supportive developmental roles of the
CBN towards addressing some of these
structural issues. The MPC specifically
expressed
optimism
on
the
future
impact of N50 billion Household and
SME facility, out of which N49.195 billion
has been disbursed, to over 92,000
beneficiaries.
The
N100
billion
healthcare
and
N1.0
trillion
manufacturing
and
agricultural
interventions to support the rebound in
growth
from
the
impacts
of
the
pandemic
on
the
economy.
The
Committee further commended the
CBN coordinated CA-COVID - Private
sector intervention scheme - which had
mobilized over N32 billion to support the
economy, lives and livelihoods. The
Committee noted that the CBN had
disbursed over N152.9 billion to the
manufacturing sector to finance 61
manufacturing projects and another
N93.6 billion to the Healthcare sector,
amongst many other sector-specific
facilities.

The Committee is hopeful that upon
further drawdown of these intervention
facilities, the much needed reset and
rebound of the Nigerian economy will
become a reality.

The Committee noted that broad
money supply (M3) grew by 1.64 per
cent in June 2020 from 2.72 per cent in
May 2020, largely due to increases in
Net Domestic Assets (NDA) and Net
Foreign Assets (NFA). The growth in M3,
however, remained well below the
indicative benchmark of 13.09 per cent
for 2020.

Aggregate domestic credit (net) grew
by 5.16 per cent in June 2020 compared
with 7.47 per cent in May 2020. The
Committee commended the CBN Loanto-Deposit
Ratio
(LDR)
initiative
to
address the credit conundrum as the
total gross credit increased by N3.33
trillion from N15.56 trillion at end-May
2019 to N18.90 trillion at end-June 2020.
These credits were largely recorded in
manufacturing,
consumer
credit,
general commerce, and information
and communication and agriculture,
which are productive sectors of the
economy.

Money market rates remained relatively
stable in the review period, reflecting
the prevailing liquidity situation in the
banking system. The monthly weighted
average Inter-bank call and Open Buy
Back (OBB) rates increased to 5.75 and
11.31 per cent, respectively, in June
2020 from 5.22 and 5.80 per cent,
respectively in May 2020.

The Committee welcomed the modest
recovery
recorded
in
the
equities
market as the All-Share Index (ASI) and
CBN Monetary Policy Review

Market Capitalization (MC) increased
by 6.33 and 6.44 per cent, on April 30
and June 30, 2020, respectively. The
modest improvement reflected the
resumption of business activities which
spurred

market
confidence,
as
Government
commenced
gradual
ease of the lockdown.

The Committee noted the decrease in
NPLs ratio to 6.4 per cent at end-June

from
9.4
per
cent
in
the
corresponding
period
of
2019,
on
account of increased recoveries, writeoffs and disposals. The Committee
expressed confidence in the stability of
the banking system and urged the Bank
to monitor the compliance of DMBs to its
prudential and regulatory measures to
sustain the soundness and safety of the
banking industry.

In light of the Bank’s continued effort to
find innovative ways of using local
resources to diversify the sources of the
country’s Foreign Exchange Reserves,
the Committee welcomed the decision
of the Central Bank of Nigeria to
develop a Gold Purchase Framework
under
the
Federal
Government’s
Presidential
Artisanal
Gold
Mining
Development
Initiative.

The
standardised gold bars, which would be
purchased in Naira from Nigerian miners
and refiners would not only create
thousands of jobs for the artisans, but
would provide a new sources of foreign
exchange accretion to our reserves,
and ensure the strength and stability of
the Naira.

The Committee also commended the
Federal Government for the approval to
establish
a
CBN-led
Infrastructure
Development Company, which will
leverage local and international funds
for rebuilding of critical infrastructure
across the country. This entity, which will
be wholly focused on Nigeria and
Nigerians alone will be co-owned by the
CBN, the Africa Finance Corporation
(AFC)
and
the
Nigeria
Sovereign
Investment
Authority
(NSIA),
but
exclusively
managed
by
an
Independent
Infrastructure
Fund
Manager (IIFM) that will mobilize local
and foreign capital to support the
Federal Government in building the
transport infrastructure required to move
agriculture and other products to
processors, raw materials to factories,
and finished goods to markets. The sum
of N15 trillion is projected over 5 years for
the initial run. The Committee noted with
satisfaction the CBN’s immediate work
on the updates and timelines for the
establishment of this much-needed
entity.

Outlook
The outlook for the global economy
remains
weak.
The
IMF’s
earlier
expectations
that
the
coronavirus
pandemic will wane by the end of the
second quarter of 2020, as economies
implement
the
various
prevention
protocols, were not achieved. Several
countries witnessed a second outbreak
after the initial ease in lockdown. This
necessitated the IMF’s downgrade of
output growth forecast for both 2020
and 2021.
CBN Monetary Policy Review

The slow recovery in oil prices, and its
attendant volatility, is projected to
continue in 2020 and well into 2021. This
would
further
dampen
recovery
prospects, particularly for most oilexporting countries.

With
many
central
banks,
in
the
advanced economies, exhausting their
conventional
monetary
policy
headroom, unconventional monetary
policy tools would trigger global liquidity
surfeit, with consequences for many
emerging
market
and
developing
economies,
including,
volatility
in
international
financial
system
and
markets.

Provisional
data
on
key
domestic
macroeconomic variables indicate that
the Nigerian economy may record
negative quarterly GDP growth in the
2nd quarter of 2020, but there is cautious
optimism that the year may end in
marginal negative territory, with strong
recovery prospects in 2021.

The Committee’s Considerations
The Committee’s considerations were
guided by the developments in the
global
and
domestic
economic
environment.

The MPC noted that the current
coordinated efforts by the Federal
Government to contain the COVID-19
pandemic
would
reposition
the
economy on a sustainable path of rapid
recovery. The Committee welcomed
the
government’s
articulated
fiscal
stimulus to cushion the impact of the
pandemic
on
households
and
businesses, through various palliatives
and fiscal incentives and reiterated the
need
for
effective
and
timely
implementation.

The MPC expressed the utmost need for
both the monetary and fiscal authorities
to collaborate, for the optimal synergy
for measures targeted at reviving the
economy. The Committee called on the
government to sustain its efforts at
diversifying revenue sources and ensure
fiscal prudence, particularly, with the
use of the recent grants and multilateral
concessionary loans. The Committee
encouraged the adoption of countercyclical fiscal policy framework to shield
the economy from persistent revenue
shocks.

The MPC noted the Bank’s overarching
commitment
to
maintaining
price
stability and encourage the Bank to
sustain the current measures targeted at
moderating
inflation,
including
addressing some of the supply-side
structural challenges.

The Committee urged the Bank to
continue to give particular attention to
its mandate of exchange rate stability,
given
the
recent
volatility
in
the
international financial system, to avoid
excessive demand pressures in the
foreign exchange market.

The MPC commended the Bank on its
efforts in sustaining the soundness and
resilience
of
the
financial
system,
particularly, in the face of severe
economic challenges. The Committee
noted the Bank’s drive to accelerate
CBN Monetary Policy Review

credit growth to the private sector,
especially to micro, small and medium
scale
enterprises
and
the
recent
monetary
stimulus
packages
to
households and businesses affected by
the pandemic.

The Committee’s Decision
The Committee reviewed the policy
options before it and argued that the
option of tightening at this time would
contradict
the
noble
initiative
of
expansion of affordable credit to the
real sector, noting that this would
heighten the cost of production which
will translate to higher prices of goods
and services and harder economic
condition for people.

On the other hand, loosening monetary
stance would provide the desired
succour for stimulating output growth
and
rapid
recovery,
but
with
implications
for
domestic
private
investment and capital mobilisation to
support the huge domestic financing
gap. Further cut in MPR may not
necessarily lead to a corresponding
decrease
in
market
interest
rate,
considering
the
current
economic
challenges. The Committee was also
mindful of the cut in policy rate at the
last MPC meeting and the need to allow
time for the transmission effect to
permeate the economy.

Given the plethora of monetary and
fiscal measures recently deployed to
address the impending economic crisis,
following the COVID-19 outbreak, it
would be a relatively cautious option to
hold,
in
order
to
evaluate
the
effectiveness
of
these
tools
at
addressing
the
current
challenges,
particularly
with
the
mounting
uncertainties
within
the
domestic
economy, as well as the external
vulnerabilities.

After reviewing the three options, the
MPC noted that the imperative for
monetary policy at the May 2020
meeting was to strike a balance
between supporting the recovery of
output
growth
and
reducing
unemployment while maintaining stable
prices. The Committee noted at this
meeting
that
the
economic
fundamentals
have
marginally
improved by the end of June 2020,
following
the
gradual
pick-up
of
economic activities as the positive
impacts of the various interventions
permeate into the economy.

As a result, the Committee noted that
the earlier downward adjustment of the
MPR by 100 basis points to 12.5 per cent
to signal the loosening monetary policy
stance is yielding positive impact as
credit growth increased significantly in
the economy. The Committee also
noted the positive impact of the various
fiscal and monetary interventions on
households, SMEs and manufacturing
sectors. The Committee also noted that
increasing MPR at this stage will thus be
counter-intuitive
and
will
result
in
upward pressure on market rates and
cost of production.

In view of the foregoing, the Committee
decided by a majority vote to retain the
Monetary Policy Rate (MPR) at 12.5 per
CBN Monetary Policy Review

cent and to hold all other policy
parameters constant.

The Committee decided by a vote of
eight members to Hold and two
members voted to Reduce MPR. All
members voted to retain all other policy
parameters.

In summary, the MPC voted to:
I.
Retain the MPR at 12.5 per cent;
II. Retain the asymmetric corridor
of +200/-500 basis points around
the MPR;
III. Retain the CRR at 27.5 per cent;
and
IV. Retain the Liquidity Ratio at 30
per cent.

Thank you.

Godwin I. Emefiele
Governor, Central Bank of Nigeria
20th July, 2020


CBN Monetary Policy Review

CENTRAL
BANK
OF
NIGERIA
COMMUNIQUÉ
NO.

OF
THE
MONETARY
POLICY
COMMITTEE
MEETING HELD ON
21ST AND
22ND
SEPTEMBER, 2020

1.0
Background
The Monetary Policy Committee (MPC)
met on Monday, 21st and Tuesday, 22nd
September, 2020, in the light of lingering
uncertainties
associated
with
the
COVID-19 pandemic and downturn in
crude oil prices. These uncertainties
which centered primarily on when the
pandemic will be fully subdued and the
oil market return to normalcy, have
resulted in persistent weak aggregate
demand, disruptions in global supply
chains,
mixed
price
development,
volatile and downward trending oil
prices, as well as rising unemployment.
The
Committee
reviewed
these
developments
and
assessed
their
impact on the domestic economy in the
first three quarters of 2020 and noted the
outlook for the rest of the year.
Ten (10) members of the Committee
were in attendance.

Global Economic Developments
The
Committee
observed
the
moderate
improvement
in
global
output performance with widespread
recession in the second quarter of 2020.
This followed the sharp decline in output
growth in the Advanced Economies
and
some
Emerging
Markets
and
Developing Economies (EMDEs), as well
as the risk of further deterioration in
global output growth, associated with
the lingering shocks from the COVID-19
pandemic.
Global
exports
and
international travels, however, showed
signs of gradual, but sluggish recovery,
as countries relax restrictions to allow for
resumption of economic activities.

The International Monetary Fund (IMF),
therefore, remained cautious of its
global growth forecast for 2020, which
was
hinged
on
the
near-term
containment of the pandemic. The
likelihood of a second-round spike in the
rate
of
infection
is,
however,
undermining hopes of an early return to
normalcy. Oil exporting countries are
also likely to face further revenue
shortfalls as a result of the decision by
OPEC+ to reduce its production ceiling
from 9.6 million barrels per day to 7.7
million barrels per day. Due to these
headwinds, we suspect that the global
economy
may
suffer
a
deeper
contraction in 2020 than the 4.9 per cent
projected by the IMF. This may also
dampen the projected recovery in 2021.
The MPC observed the huge injection of
monetary and fiscal stimulus into the
global economy, noting its mediumterm inflationary potential. In major
advanced economies, inflation mostly
remained below their 2.0 per cent longrun objectives, as the recovery of both
global aggregate demand and supply
remained stalled. Across the group of
Emerging
Market
and
Developing
Economies,
price
development
remained mixed, reflecting the diverse
structure of these economies. The
exchange rates of EMDEs continued to
be under pressure as global capital
flows were subdued, reflecting investor’s
preference for gold as a safe haven.
With
the
unprecedented
and
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coordinated injection of liquidity by
central banks and fiscal authorities
globally, the risk of another financial
crisis post-COVID-19 can no longer be
overlooked as this may likely crystalize
into a double deep global recession
when central banks across the globe
move to normalize monetary policy.

In
the
global
financial
markets,
conditions
remain
relatively
tight
reflecting continued uncertainties. Thus,
while markets are showing moderate
signs of recovery, financial conditions
are yet to ease fully as investors remain
cautious of the lingering risk of a secondround of lockdown.

Domestic Economic Developments
Available
data
from
the
National
Bureau of Statistics (NBS) showed that
real Gross Domestic Product (GDP)
contracted by 6.10 per cent in the
second quarter of 2020 compared with
expansions of 1.87 and 2.12 per cent in
the preceding quarter of 2020 and the
corresponding
period
of
2019,
respectively. The development ended,
the three-year trend of low, but positive
real GDP growth recorded in Nigeria
since the end of the 2016/17 recession.
The contraction in Q2 2020 was largely
driven by the poor performance of both
the oil and non-oil sectors due to the
lockdown to contain the spread of the
pandemic in Q1 2020. The oil sector
contracted by 6.63 per cent in Q2 2020
from -5.03 per cent in the previous
quarter,
while
the
non-oil
sector
contracted by 6.05 per cent in Q2 2020,
compared with an expansion of 1.55 per
cent in Q1 2020.
The MPC noted the continued weakness
in economic activities as indicated by
the
Manufacturing
and
nonManufacturing Purchasing Manager’s
Indices (PMIs), which remained below
the 50-index point benchmark. In August
2020, the Manufacturing and nonManufacturing PMIs were 48.5 and 44.3
index points, respectively, compared
with 42.4 and 43.3 index points in July
2020. This was attributed to slower
growth in production, business activities,
new
orders,
supply
delivery
time,
employment level, new export orders
and raw materials and input prices.
Similarly, the employment level index
component of the Manufacturing and
non-Manufacturing PMIs in August 2020
was
44.6
and
44.3
index
points,
respectively, compared with 40.0 and
41.1 index points in July 2020. The
Committee was, however, optimistic
that with the easing of the lockdown
and gradual resumption of economic
activities, the PMIs will improve in the
short-to medium term.

The
Committee
expressed
deep
concern on the continued uptick in
inflation for the twelfth consecutive
month as headline inflation (year-onyear) rose to 13.22 per cent in August
2020 from 12.82 per cent in July 2020. The
increase in headline inflation was largely
driven by the persistent increase in the
food component, which rose to 16.00
per cent in August 2020 from 15.48 per
cent in July 2020. The core component
also rose to 10.52 per cent in August from
10.10 per cent in July 2020. These upticks
were
driven
primarily
by
legacy
structural
factors
such
as
the
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inadequate
state
of
critical
infrastructure and broad-based security
challenges across the country, which
dampened production activities. Other
factors include the disruptions to supply
chains
following
restriction
to
movements to curb the spread of the
pandemic; adverse weather conditions,
which resulted in flooding of farmlands;
as well as the inflation pass-through to
domestic
prices
following
the
depreciation in the exchange rate. The
recent increase in energy cost is also
expected
to
further
impact
the
domestic price level in the short-term.

The Committee, therefore, stressed the
urgent need for a combination of
broad-based monetary and fiscal policy
measures to curb the rise in inflation and
contraction in output growth. This will
involve targeted investment by the fiscal
authorities
to
resuscitate
critical
infrastructure to improve the ease of
doing business across the country. In
addition, the MPC believes the fiscal
authorities can build on earlier efforts
and articulate a clear strategy to attract
private sector investment. The Bank will,
however, continue to take relevant
steps to ensure that the detrimental risk
of inflation to the economy is contained.
The Committee noted the various
interventions by the CBN to reflate the
economy, improve aggregate supply
and
drive
down
inflation.
Recent
interventions were largely in the areas of
Manufacturing, Agriculture, Electricity &
Gas,
Solar
Power
and
housing
constructions
among
others.
It
expressed optimism that these initiatives
will
significantly
ease
the
adverse
impact of the COVID-19 pandemic and
set the economy on a path of recovery.
So far, total disbursements from the
Bank’s interventions in the wake of the
COVID-19 pandemic amounted to N3.5
trillion including: Real Sector Funds,
(N216.87 billion); COVID-19 Targeted
Credit Facility (TCF), (N73.69 billion);
AGSMEIS,
(N54.66
billion);
Pharmaceutical
and
Health
Care
Support Fund, (N44.47 billion); and
Creative Industry Financing Initiative
(N2.93 billion). Under the Real Sector
Funds, a total of 87 projects that
included

Manufacturing,

Agriculture and 13 Services projects
were funded. In the Health Care sector,

projects
which
included

pharmaceuticals and 25 hospital and
health care services were funded.
Under the Targeted Credit Facility,
120,074
applicants
have
received
financial support for investment capital.
The Agri-Business/Small and Medium
Enterprise
Investment
Scheme
(AGSMEIS)
intervention
has
been
extended to a total of 14,638 applicants,
while 250 SME businesses, predominantly
the youths, have benefited from the
Creative Industry Financing Initiative. In
addition to these initiatives, the CBN is
set to contribute over N1.8 trillion of the
total sum of N2.30 trillion needed for the
Federal Government’s 1-year Economic
Sustainability Plan (ESP), through its
various financing interventions using the
channels
of
Participating
Financial
Institutions (PFIs). The MPC is, thus, using
this medium to appeal to our important
economic
stakeholders
to
take
advantage
of
these
intervention
CBN Monetary Policy Review

initiatives to help support a quick
rebound in growth.

The Bank’s policy on Loan to Deposit
ratio also resulted in a significant growth
in credit to various sectors from N15.57
trillion to N19.33 trillion between endMay 2019 and end-August 2020, an
increase of N3.77 trillion. This growth in
credit was mainly to manufacturing
(N866.27
billion),
consumer
credit
(N527.65 billion), oil & gas (N477.65
billion), agriculture (N287.11 billion) and
construction (N270.97 billion).

On
Monetary
Aggregates,
broad
money supply (M3) rose to 6.93 per cent
(year-to-date) in August 2020 from 5.23
per cent in July 2020, reflecting the
increase in both Net Foreign Assets and
Net
Domestic
Assets.
Similarly,
aggregate domestic credit (net) grew
by 6.94 per cent in August 2020
compared with 9.43 per cent in July
2020.

Money market rates remained relatively
stable in the review period with some
mild volatility, reflecting the prevailing
liquidity
conditions
in
the
banking
system. The monthly weighted average
Inter-bank call rate increased to 7.38 per
cent in August 2020 from 6.25 per cent
July 2020, while the Open Buy Back
(OBB) rate decreased to 8.39 per cent in
August 2020 from 10.12 per cent in July
2020.

The
MPC
noted
the
moderate
improvement in the equities market in
the review period, as the All-Share Index
(ASI) increased by 5.78 per cent from
24,174.75 on July 21, 2020 to 25,572.57 on
September 18, 2020. On a year-to-date
basis, however, the ASI decreased by
4.73 per cent compared with 26,842.07
as at December 31, 2019. Market
Capitalisation (MC) also increased by
5.98 per cent from N12.61 trillion to
N13.36 trillion over the same period. As a
lead
indicator,
therefore,
this
improvement in market indices signposts
the commencement of a broad-based
economic recovery.

The
Committee
also
noted
the
decrease in the NPLs ratio to 6.1 per
cent at end-August 2020 compared
with 9.4 per cent in the corresponding
period of 2019 due largely to recoveries,
write offs and disposals.

The Committee expressed confidence
in the overall stability of the banking
system as reflected in the positive
performance of the financial soundness
indicators (FSIs), despite the persistence
of the COVID-19 pandemic. It however,
called on the Bank to sustain its
regulatory oversight on the industry in
the light of the continued fragility of
macroeconomic indicators and the
impact of the COVID-19 pandemic and
the growing risk of cyber-attacks on
business and economic activities.

On the external sector, the Committee
noted the resumption of sales to
Bureaux de Change (BDCs) in a bid to
improve liquidity and ease demand
pressure
in
the
foreign
exchange
market. Consequently, the exchange
rate appreciated at all windows. The
MPC observed the recent improvement
CBN Monetary Policy Review

in external reserves and urged the Bank
to maintain its prudent allocation of
foreign exchange towards balancing
supply and demand.

Outlook
The broad outlook for the global
recovery remains uncertain, as the
headwinds associated with the COVID19 pandemic persist, especially due to
new indications of a second spike in the
rate of infections, continues to dampen
prospects of a near term recovery.

With several economies contracting
deeper than expected, the global
economy
may eventually contract
beyond the
-4.9 per cent earlier
projected by the IMF, as the secondround spike in the infection rate has
resulted
in
widespread
localized
lockdowns in some advanced and
emerging
market
economies.
In
addition, the persisting volatility in global
oil prices, which is likely to continue
beyond the end of 2020 as indicated by
the deliveries in the oil futures market,
signposts the likelihood of a disorderly
global recovery.

The
synchronized
monetary
policy
accommodation
by
major
central
banks in both the Advanced and
Emerging Market Economies, portends
the likelihood of a medium-term debt
crisis which may set the global economy
into another downturn, if not properly
managed.

On
the
domestic
economy,
staff
forecast suggests that the economy
may continue to grapple with the
effects of the pandemic throughout the
rest of the year. With persistent focus on
activities
meant
to
reverse
the
contraction, the MPC projects growth at
positive levels in Q4 2020, or at the latest
by Q1 2021, based on the anticipated
positive results from the coordinated
and sustained interventions by both the
monetary and fiscal authorities. These
interventions include, the coordinated
response of the monetary and fiscal
authorities to curtail the spread of the
COVID-19
pandemic,
reverse
the
downturn in the economy, improve
sources of revenue in the non-oil sector
and encourage the build-up of fiscal
buffers.

The Committee’s Considerations
The
Committee’s
considerations
focused
on
the
major
headwinds
exerting downward pressure on output
growth
and
upward
pressure
on
domestic prices.

The key factors considered by the MPC
as likely to exert upward pressure on
domestic prices in the near term
include: the prevalence of security
challenges in the country; adverse
weather conditions causing flooding in
some farming regions; the increase in
petroleum pump price; deregulation in
electricity tariff; low crude oil price; and
exchange rate adjustment.

The Committee noted that available
evidence does not support the view
that the rise in inflation was due to
monetary
factors.
Rather,
there
is
overwhelming
evidence
that
the
inflationary
pressure
reflects
the
CBN Monetary Policy Review

prevalence of structural rigidities and
supply shocks. Hence, the traditional
tools of monetary policy may not be
helpful in addressing current inflationary
pressures. Instead, the useful policies will
be
the
supply-side
measures
implemented by the Bank. In the light of
this, reducing MPR will signal to the
Deposit Money Banks to lend more to
stimulate growth, increase aggregate
supply, which should dampen prices in
the immediate term.

Although the MPC remains committed
to its primary mandate of ensuring price
stability, it however, noted the need to
address the structural supply-side issues
that are putting upward pressure on
production
cost
and
depressing
economic growth. To this end, the
Committee
supports
the
various
intervention programmes of the Bank
towards stimulating production in the
agricultural and manufacturing sectors
to increase aggregate output and
lower prices.

On Financial Markets, the Committee
considered the impact of the dwindling
capital inflows on yields in the equities,
bonds and money markets. It, however,
observed the improvement in the
equities market from the second quarter
of
2020,
indicating
prospects
of
medium-term
economic
recovery.
Members also took cognizance of the
prevailing low rates in the money market
which are also below the lower band of
the standing facilities corridor, as being
a
distortion
to
money
market
operations.
The Committee noted the increase in
aggregate credit and encouraged
further
expansion
in
credit
to
employment-generating
sectors
to
expedite growth recovery. It, however,
urged the Bank to sustain its regulatory
surveillance over the banking system to
ensure that Non-Performing Loans (NPLs)
remain low.

The Committee also noted the rising
public debt profile and urged the fiscal
authority
to
strengthen
its
debt
management strategy, explore other
sources of revenue, as well as enhance
efficiency in public expenditure. It
commended the combined effort of the
Federal Government and the CBN in
providing
the
required
stimulus
to
contain the pandemic and ease its
impact on the Nigerian economy.

The Dilemma of Monetary Policy
The MPC was at this meeting confronted
by policy dilemma. Whereas MPC
believes in the primacy of its price and
monetary
stability
mandate,
it
nevertheless was confronted with what
policy direction to focus on, given the
contraction in output growth during the
second quarter of 2020, which may lead
to a recession, if the third quarter of 2020
output growth numbers further show a
contraction. It is, therefore, of the view
that, if a recession occurs in Q3 2020 the
Committee would be confronted with
proposing policy options in a period of
stagflation. This is because, with the
recent removal of subsidy on fuel price,
the increase in energy prices, and the
adjustment of the exchange rate,
inflationary pressure will no doubt persist
CBN Monetary Policy Review

unless MPC consider options that will
deal with the pressure aggressively.
The Committee was therefore of the
view that, to abate the pressure, it had
no
choice
but
to
pursue
an
expansionary monetary policy using
development
finance
policy
tools,
targeted
at
raising
output
and
aggregate supply to moderate the rate
of inflation.

At present, fiscal policy is constrained
and so cannot, on its own lift the
economy
out
of
contraction
or
recession given the paucity of funds
arising from weak revenue base, current
low crude oil prices, lack of fiscal buffers
and high burden of debt services.
Therefore,
monetary
policy
must
continue to provide massive support
through
its
development
finance
activities to achieve growth in the
Nigerian economy. This is the reason
MPC will continue to play a dominant
role in the achievement of the goals of
the Economic Sustainability Program
(ESP) through its interventionist role to
navigate
the
country
towards
a
direction that will boost output growth
and moderate the level of inflation.

Similarly,
given
that
the
currency
adjustment was a causal factor in
determining the price of petroleum
products and energy prices, the MPC
believes that the CBN management
must take bold actions to stabilize the
exchange rate. Management was
further enjoined by the MPC to continue
to provide funding to sectors that will
resolve the supply constraints in petrol
pricing,
energy
pricing
and
food
availability.

To support household consumption, the
MPC
enjoined
management
to
aggressively channel its funding to
targeted
households,
SMEs
and
consumer credit by further increasing its
lending activities through its NIRSAL
Microfinance
Bank
(NMFB).

The
Management was also directed to
ensure that DMBs respond to the
reduction
in
deposit
rates
by
aggressively lowering cost of credit to
borrowers.

As regards output growth, MPC noted
that
air
and
road
transportation;
entertainment & accommodation; food
services; and education subsectors
were
adversely
affected
by
the
lockdown. It therefore suggested that
more efforts be put in place to continue
to provide relief and funding to these
subsectors to catalyse growth and
improve the output numbers.

Dealing with The Causal Factors of
Inflation
In the view of the MPC, so far, evidence
has not supported the rising inflation to
monetary factors but rather, evidence
suggests
non-monetary
factors
(structural factors) as the overwhelming
reasons accounting for the inflationary
pressure.

Accordingly, the implication is that
traditional monetary policy instruments
are not helpful in addressing the type of
inflationary pressure we are currently
confronted with. What is useful is the kind
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of supply side measures currently being
implemented. MPC also expects that a
downward adjustment in MPR may be
necessary to further put pressure on our
deposit money banks to lower cost of
credit in aid of growth.

The Committee’s Decision
In the face of declining economic
growth
and
rising
inflation,
the
Committee faced a difficult set of policy
choices,
requiring
trade-offs
and
sequencing.

Following the above considerations, the
Committee
reviewed
the
choices
before it, bearing in mind its primary
mandate of price stability and the need
to support the recovery of output
growth. Consequently, the Committee
noted that the likely action aimed to
addressing the rise in domestic prices
would have been to tighten the stance
of policy, as this will not only moderate
the upward pressure on prices, but will
also attract fresh capital into the
economy and improve the level of the
external reserves. It however, noted that
this decision may stifle the recovery of
output growth and thus, drive the
economy further into contraction.

On easing the stance of policy, the MPC
was of the view that this action would
provide cheaper credit to improve
aggregate
demand,
stimulate
production, reduce unemployment and
support the recovery of output growth.
The Committee, however, observed
that with inflation trending upwards,
easing of the policy stance may
exacerbate the current inflationary
pressure through an increase in money
supply. In addition, the MPC noted the
tendency of an asymmetric response to
downward price adjustments by ‘Other
Depository
Corporations’,
thus
undermining
the
overall
beneficial
impact of a reduction to the cost of
capital.

In the Committee’s view, a hold position
will allow the economy to adjust to the
ongoing stimulus measures put in place
by the monetary and fiscal authorities to
curb the downturn and allow more time
for the MPC to assess their impact on the
economy.

After the consideration of the three
policy options, Members were of the
opinion that the option to loosen will
complement the Bank’s commitment to
sustain the trajectory of the economic
recovery and reduce the negative
impact of COVID-19. In addition, the
liquidity injections are expected to
stimulate
credit
expansion
to
the
critically
impacted
sectors
of
the
economy and offer impetus for output
growth and economic recovery.

In view of the foregoing, the Committee
decided to reduce the MPR by 100 basis
points to 11.5 per cent and adjust the
asymmetric
corridor
to
+100/-700
around the MPR.

Six (6) members voted to reduce the
MPR by 100 basis points, one (1) member
by 50.0 basis points and three (3) voted
to hold. Nine (9) members voted to
change the asymmetric corridor while
one member voted to hold.
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All members voted to hold the Cash
Reserve Ratio (CRR) and Liquidity Ratio
(LR).

In summary, the MPC voted to:
i.
Reduce the MPR by 100 basis
points from 12.5 to 11.5 per cent;
ii.
Adjust the asymmetric corridor
from +200/-500 basis points to
+100/-700 basis points around
the MPR;
iii.
Retain the CRR at 27.5 per cent;
and,
iv.
Retain the Liquidity Ratio at 30
per cent.

Thank you.

Godwin I. Emefiele
Governor, Central Bank of Nigeria
22nd September, 2020


CBN Monetary Policy Review

CENTRAL
BANK
OF
NIGERIA
COMMUNIQUÉ
NO.

OF
THE
MONETARY
POLICY
COMMITTEE
MEETING HELD ON MONDAY 23rd AND
TUESDAY 24th NOVEMBER 2020

1.0
Background
The Monetary Policy Committee (MPC)
met on the 23rd and 24th of November,
2020 amidst the announcement of the
discovery of several high efficacy
COVID-19 vaccines, resulting in stronger
optimism for improvement in global
output. However, persisting weakness in
crude oil prices, soaring global debt and
high unemployment persist. In the
domestic environment, the Nigerian
economy slid into recession in the third
quarter of 2020, following a second
consecutive quarter of contraction in
output. The third quarter contraction
was, however, milder than the previous
quarter. The Committee appraised the
developments in both the global and
domestic economies, as well as the
outlook for the rest of the year and the
first quarter of 2021.

Ten (10) members of the Committee
were in attendance at the meeting.

Global Economic Developments
Although
the
global
economy
witnessed
a
better-than-expected
recovery in the second quarter of 2020,
it, however, continued to be weighed
down
by
the
headwinds
largely
associated
with
the
COVID-19
pandemic and weak crude oil prices. In
the
advanced
economies,
the
persistence
of
weak
aggregate
demand, slow recovery in supply chain
networks and the rebound in COVID-19
infection rates, have cast a new wave
of uncertainty over their recovery in the
short to medium term. In the Emerging
Market and Developing Economies
(EMDEs), China continues to lead the
recovery, recording a stronger-thanexpected growth in the second quarter
of 2020. In India, on the other hand,
growth continued to be muted as a
result of increasing rates of COVID-19
infections and fatality. In general, this
group of economies is set to contract
less, compared with the advanced
economies, led by the expected strong
recovery in China. Consequently, the
International
Monetary
Fund
(IMF)
reviewed the forecast for global growth
in 2020 to reflect a slower pace of
contraction from -4.9 per cent to -4.4 per
cent.

Inflation in most Advanced Economies is
expected to remain subdued in the
medium to long term as aggregate
demand remains weak across several
economies, reflecting the impact of the
Pandemic on income. The US economy
has, however, maintained a steady
pace of job creation, even though
infection
rates
and
total
fatality
continue to rise in that country. The
threat of a rebound of the Pandemic in
several countries has resulted in second
and third waves of lockdowns in these
countries. This is expected to further
dampen aggregate demand and slow
the pace of price development. In
several
Emerging
Market
and
Developing
Economies
(EMDES),
inflation
remained
relatively
high
compared
with
the
Advanced
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Economies owing to the persistence of
exchange rate pressures, dwindling
capital flows and weak accretion to
reserves as well as other structural issues.
In the financial markets, conditions
remain relatively stable, buoyed by
continued monetary and fiscal stimulus.
The huge level of monetary and fiscal
injections has, however, increased the
likelihood of a global financial crisis postpandemic, especially when central
banks
commence
normalization
of
monetary policy.

Domestic Economic Developments
Data from the National Bureau of
Statistics (NBS) showed that real Gross
Domestic Product (GDP) contracted by
-3.62 per cent in Q3 2020, compared
with -6.10 and 2.28 per cent in the
previous quarter and corresponding
period of 2019, respectively, thereby
pushing the economy into recession.
The oil sector contracted further by
13.89 per cent in Q3 2020 from -6.63 per
cent in the previous quarter, while the
non-oil sector contracted by -2.51 per
cent in Q3 2020, compared with -6.05
per cent in the preceding quarter. The
persisting
weak
performance
was
mainly attributed to the lull in economic
activities associated with the low price
in the oil market as well as the lingering
effects of the Coronavirus Pandemic.

The
MPC
observed
the
gradual
improvement in the Manufacturing and
Non-Manufacturing
Purchasing
Managers’ Indices (PMIs) which rose to
50.2 and 47.6 index points, respectively,
in November 2020, compared with 49.4
and 46.8 index points in October 2020.
This development signposts an increase
in economic activities, driven by growth
in new orders, improved supply delivery
time, rising production levels and new
export orders. The employment level
index component of the manufacturing
and
non-manufacturing
PMIs
also
improved in November 2020 to 47.3
index points and 46.7 index points,
respectively, compared with 46.0 index
points and 44.2 index points in October
2020. The Committee, however, noted
the likely downside risk to growth of the
recent unrest in the country, warning
that
this
may
adversely
impact
economic recovery in the near term.

The Committee noted with concern that
inflation has been on the rise for the
fourteenth
consecutive
month,
as
headline inflation (year-on-year) moved
up to 14.23 per cent in October 2020
from 13.71 per cent in September 2020.
This was attributed to the increase in
both food and core inflation, which rose
to 17.38 and 11.14 per cent in October
2020 from 16.66 and 10.58 per cent in
September
2020,
respectively.
The
continued increase in food and core
inflation
was
attributed
to
the
persistence of insecurity across the
country as well as lingering structural
deficiencies impacting the logistics of
moving food items to urban areas such
as poor road networks, unstable power
supply and a host of other infrastructural
deficiencies. Other factors include the
persisting
impact
of
coronavirusinduced supply disruptions, recent hikes
in the price of energy products (PMS
and electricity) and weak crude oil
prices.
CBN Monetary Policy Review

The Committee, however, noted that
the rise in inflation will likely abate in the
medium term, as domestic production is
expected to recover, following the
resumption
of
economic
activities
postCOVID-19 lockdown. In addition to
this, food inflation is expected to
moderate as harvest season sets in.
Monetary and fiscal policies are also
expected to continue their broadbased stimulus support towards full
recovery. This will involve fiscal measures
to reduce unemployment, provide an
enabling environment for private sector
investment and necessary support to
the health sector to cushion the impact
of
the
coronavirus
pandemic.
In
addition, the CBN is expected to sustain
its various intervention measures to
boost consumer spending and support
the recovery.

The Committee noted that growth in
broad money supply (M3) increased
marginally to 3.53 per cent in October
2020 from 3.20 per cent in September
2020, reflecting an increase in Net
Foreign Assets (NFA). It further noted the
moderation
in
contraction
in
Net
Domestic Assets (NDA) to -2.19 per cent
from -5.05 per cent in the previous
period. Aggregate domestic credit,
however, grew by 7.61 per cent in
October 2020 compared with 7.35 per
cent in the previous month, as a result of
the Bank’s policy on Loan-to-Deposit
Ratio (LDR), supported by the Bank’s
interventions in the various sectors of the
economy. Total gross credit by the
banking industry stood at N19.54 trillion
as at 13th November 2020 compared
with N19.33 trillion at end-August 2020,
an increase of N290.13 billion. When
compared with N15.56 trillion at the
commencement of the LDR policy in
May 2019, total gross credit increased
by N3.97 trillion. These loans were
granted mainly to manufacturing (N738
billion),
General
Commerce
(N874
billion), Agric and Forestry (N301 billion),
Construction (N291 billion), ICT (N231
billion), just to mention a few.

The Committee noted the reduction in
interest rates on loans granted by
Deposit Money Banks (DMBs). As at
October 2020, 86.23 per cent of total
loans granted to over one (1) million
customers, by Deposit Money Banks
(DMBs)
were
at
interest
rates
considerably below 20 per cent. This was
an improvement from 76.43 per cent as
at July 2019.

MPC
noted
the
improvement
in
Financial Soundness Indicators of the
DMBs which showed Capital Adequacy
Ratio (CAR) of 15.5 per cent, NonPerforming Loans (NPLs) of 5.73 per cent
and Liquidity Ratio (LR) of 35.6 per cent,
as
at
October,
2020.
As
regards
nonperforming
loans
(NPLs),
MPC
however, noted that the ratio remained
above the prudential benchmark of 5.0
per cent and urged the Bank to sustain
its tight prudential regime to bring it
below the benchmark.

The
Committee
welcomed
the
improvement in the financial soundness
indicators of Other Financial Institutions
(OFIs) as indicated by the growth of
N582 billion, or 16.94 per cent (year-onyear), in aggregate assets to N4.02
CBN Monetary Policy Review

trillion
as
at
end-September
2020.
Similarly, aggregate credit grew by N217
billion, or 12.27 per cent (year-on-year),
to N1.99 trillion during the same period.
The Capital Adequacy Ratio for the
subsector also exceeded the minimum
prudential ratio of 10 per cent.

The
Committee
recognized
the
supportive developmental roles of the
CBN towards addressing some of the
structural issues in the economy. The
MPC specifically expressed optimism on
the future impact of the disbursements
from Agri-Business/Small and Medium
Enterprise
Investment
Scheme
(AGSMEIS) (N92.90 billion to 24,702
beneficiaries),
Anchor
Borrowers
Program (ABP) by the sum of N164.91
billion to 954,279 beneficiaries and
COVID-19 Targeted Credit Facility (TCF)
to household and SMEs (N149.21 billion
to 316,869 beneficiaries).

Liquidity conditions in the banking
system continued to influence money
market rates in the review period. The
Open Buy Back (OBB) rate declined
progressively as a result of rising liquidity
levels in the banking system, while there
were
no
transactions
at
the
uncollateralized inter-bank call window.
Consequently, the monthly weighted
average OBB rate declined to 1.88 per
cent in October 2020 from 3.50 per cent
in September 2020.

The
Committee
noted
the
recent
impressive performance recorded in the
equities
market,
particularly
the
increased
patronage
by
domestic
investors largely driven by low yields in
the money market. The All-Share Index
(ASI) increased by 20.55 per cent to
30,530.69 on October 30, 2020 from
25,327.13
on
September
30,
2020.
Similarly, Market Capitalization, grew by
20.82 per cent to N15.96 trillion from
N13.21 trillion over the same period. This
improved performance was largely
attributed to positive third quarter
corporate earnings as investors moved
in to pick-up bargain stocks.

The Committee observed the moderate
decline in the external reserves position,
which stood at US$35.18 billion as at
November 19, 2020 compared with
US$35.95 billion at end-September 2020,
as crude oil prices continue to fluctuate
with downward pressure.

Outlook
Overall, the medium-term outlook for
the global economy is beginning to
show a ray of optimism following the
discovery of COVID-19 vaccines.

In the domestic economy, available
data
and
forecasts
for
key
macroeconomic variables also suggest
optimism in output growth in the fourth
quarter of 2020, due to the positive
outlook for most economic activities.
Accordingly, the economy is expected
to recover from recession by the end of
2020, while inflation is projected to
moderate by the first quarter of 2021.

The Committee’s Considerations
The
Committee’s
considerations
remained focused around tailwinds
imparting upward pressure to domestic
CBN Monetary Policy Review

prices and key headwinds to output
growth.

The Committee noted that inflation
continued to be driven by supply side
disruptions arising from the COVID-19
pandemic and other legacy factors.
Key amongst these are: the security
challenges in parts of the country;
increase in food prices; and the recent
hike in pump price of PMS and electricity
tariff. The MPC, therefore, emphasized
the need to address structural supply
side issues putting upward pressure on
costs of production and unemployment.
To address the public health crisis
associated
with
the
COVID-19
pandemic, the Committee urged the
Federal Government to make relentless
effort to procure a substantial quantity
of the COVID-19 vaccines to surmount
the public health crisis and pave the
way for a broader macroeconomic
recovery.

The
Committee
noted
that
the
contraction had bottomed out, since it
moderated significantly from -6.10 to -
3.62 per cent in the third quarter of 2020.
This was so because both the monetary
and fiscal authorities had anticipated
the impending recession and had put
measures in place for its quick reversion.
Some of these measures include the
Economic Sustainability Programme by
the Federal Government and other CBN
facilities targeted at households, small
and medium enterprises (SMEs), youth
empowerment,
and
reduction
of
unemployment.
It
thus,
urged
the
Federal Government to maintain its
initiatives
targeted
at
reducing
unemployment, particularly amongst
the youths, citing the recent EndSARS
protests and ensuing agitation by
hoodlums as potentially disruptive to
output growth in Nigeria. To this end, the
MPC reiterated its support for the various
development finance initiatives of the
CBN
to
stimulate
production
and
reduce unemployment. MPC further
encouraged the Bank to intensify its
efforts by increasing funding to more
beneficiaries so as to boost consumer
spending and accelerate recovery from
recession.

On
the
Financial
Markets,
the
Committee considered the improved
performance in the equities market as a
leading
indicator
of
medium-term
macroeconomic recovery. It thus urged
the Bank to maintain its policies on
exchange rate and financial system
stability to attract more investment into
the Nigerian equities market.

The MPC noted that credit to key sectors
of
the
economy
increased
and
encouraged
the
continued
credit
support
to
employment
stimulating
sectors to hasten the recovery of output
growth
and
improve
employment
particularly among the youths. The
Committee emphasized the need for
the Bank to maintain its regulatory
surveillance over the banking system to
ensure that nonperforming loans remain
low.

MPC noted with pleasure, the CBN’s
engagement
with
relevant
stakeholders, particularly in the private
sector, to hasten the recovery of
CBN Monetary Policy Review

growth. This engagement would involve
collaboration towards job creation and
provision of credit facilities to stimulate
business activities for both corporates
and individuals, particularly those who
lost their goods and business premises to
hoodlums, during the recent protest.

The Committee’s Decision
At this meeting, the Committee focused
not only on price stability, but also on the
need to speedily take actions to exit the
recession.
In
view
of
these
considerations, the choices before the
Committee were focused on whether:
to tighten the stance of policy to
address rising price levels recognizing its
primary mandate of price stability; to
ease to support output recovery; or to
hold to allow existing policy initiatives to
permeate the economy.

The Committee noted that, although
the appropriate response to rising
inflationary pressure would be to tighten
the stance of policy in order to
moderate upward pressure on prices, it
nevertheless, felt that doing this would
exert
downward
pressure
on
the
recovery
of
output
growth.
The
Committee also felt that tightening
would negate the Bank’s desire to
expand credit to the real sector at
affordable terms, not only to boost
production,
but
also
to
increase
consumer spending. To the Committee,
tightening
was
therefore
not
the
appropriate response at this time.

With the economy, whereas MPC felt
that government spending and Bank’s
expansionary
stance
would
be
desirable to support recovery and guide
the economy out of recession, it felt
loosening would trigger excess liquidity
and worsen the inflationary pressure.
MPC also felt that excess liquidity may
impact demand pressure and fuel
further depreciation of the naira.

With respect to a hold position, the
Committee was of the view that this will
be beneficial as it will allow current
policy
measures
to
permeate
the
economy while observing the trend of
developments. The Committee also felt
that the heterodox policies of the Bank
targeted at various sectors are showing
positive
results
that
would
further
engender growth.

On balance, the MPC was of the view
that, although all three options offer
some benefits to the economy, the hold
option was desirable at this meeting.
Based on these factors, members, voted
in line with the most pressing need
towards reversing the recession and
achieving
medium
term
macroeconomic stability.

In view of the foregoing, the Committee
decided by a unanimous vote to retain
all parameters.

In summary, the MPC voted to:
i.
Retain the MPR at 11.5 per cent;
ii.
Retain the asymmetric corridor
of +100/-700 basis points around
the MPR;
iii.
Retain the CRR at 27.5 per cent;
and
iv.
Retain the Liquidity Ratio at 30
per cent.
CBN Monetary Policy Review

Thank you.

Godwin I. Emefiele
Governor, Central Bank of Nigeria
24th November, 2020